衍生品市场基础04章.ppt
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1、Chapter 4,Introduction to Risk Management,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-2,Basic Risk Management,Firms convert inputs into goods and services output input commodity producer buyerA firm is profitable if the cost of what it produces exceeds the cost of its inputsA firm th
2、at actively uses derivatives and other techniques to alter its risk and protect its profitability is engaging in risk management,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-3,The Producers Perspective,A producer selling a risky commodity has an inherent long position in this commodit
3、yWhen the price of the commodity,the firms profit(assuming costs are fixed)Some strategies to hedge profitSelling forwardBuying putsBuying collars,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-4,Producer:Hedging With a Forward Contract,A short forward contract allows a producer to lock
4、 in a price for his outputExample:a gold-mining firm enters into a short forward contract,agreeing to sell gold at a price of$420/oz.in 1 year,FIGURE 4.1 Producer profit in 1 year,assuming hedging with a short forward contract at a forward price of$420/oz.,Copyright 2009 Pearson Prentice Hall.All ri
5、ghts reserved.,4-5,Producer:Hedging With a Put Option,Buying a put option allows a producer to have higher profits at high output prices,while providing a floor on the priceExample:a gold-mining firm purchases a 20-strike put at the premium of$8.77/oz,Figure 4.2 Comparison of unhedged position,420-s
6、trike put option,and unhedged position plus 420-strike put.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-6,Producer:Insuring by Selling a Call,A written call reduces losses through a premium,but limits possible profits by providing a cap on the priceExample:a gold-mining firm sells a
7、420-strike call and receives an$8.77 premium,Figure 4.4 Comparison of Golddiggers hedging with sale of420-strike call versus unhedged.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-7,Adjusting the Amount of Insurance,Insurance is not free!in fact,it is expensiveThere are several ways t
8、o reduce the cost of insuranceFor example,in the case of hedging against a price decline by purchasing a put option,one canReduce the insured amount by lowering the strike price of the put option.This permits some additional lossesSell some of the gain.This puts a cap on the potential gain,Copyright
9、 2009 Pearson Prentice Hall.All rights reserved.,4-8,The Buyers Perspective,A buyer that faces price risk on an input has an inherent short position in this commodityWhen the price of the input,the firms profit Some strategies to hedge profitBuying forwardBuying callsSelling collars,Copyright 2009 P
10、earson Prentice Hall.All rights reserved.,4-9,Buyer:Hedging With a Forward Contract,A long forward contract allows a buyer to lock in a price for his inputExample:a firm,which uses gold as an input,purchases a forward contract,agreeing to buy gold at a price of$420/oz.in 1 year,Figure 4.6 Profit dia
11、grams for unhedged buyer,long forward,and buyer hedged with long forward.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-10,Buyer:Hedging With a Call Option,Buying a call option allows a buyer to have higher profits at low input prices,while being protected against high pricesExample:a
12、firm,which uses gold as an input,purchases a 420-strike call at the premium of$8.77/oz,Figure 4.7 Comparison of profit forunhedged gold buyer,gold buyer hedged with call,and stand-alone call.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-11,Why Do Firms Manage Risk?,Hedging can be opti
13、mal for a firm when an extra dollar of income received in times of high profits is worth less than an extra dollar of income received in times of low profitsProfits for such a firm are concave,sothat hedging(i.e.,reducing uncertainty)can increase expected cash flowConcave profits can arise fromTaxes
14、Bankruptcy and distress costsCostly external financingPreservation of debt capacityManagerial risk aversion,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-12,Aspects of the tax code:a loss is offset againsta profit from a different yearseparate taxation of capital and ordinary incomecap
15、ital gains taxationdifferential taxationacross countries,Reasons to Hedge:Taxes,Derivatives can be used to:equate present values of the effective rates applied to losses and profitsconvert one form of income to another defer taxation of capital gains income shift income from one country to another,C
16、opyright 2009 Pearson Prentice Hall.All rights reserved.,4-13,Reasons to Hedge:Bankruptcy and Distress Costs,A large loss can threaten the survival of a firmA firm may be unable to meet fixed obligations(such as,debt payments and wages)Customers may be less willing to purchase goods of a firm in dis
17、tressHedging allows a firm to reduce the probability of bankruptcy or financial distress,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-14,Reasons to Hedge:Costly External Financing,Raising funds externally can be costlyThere are explicit costs(such as,bank and underwriting fees)There a
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