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ADMS 4503 (13)


2 Pages

Administrative Studies
Course Code
ADMS 4503
Nabil Tahani

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LECTURE 1 Derivatives : options/ futures – depend on stock price and other factors – maturity, sigma, etc Note: it could be a primary asset as well Reasons to play derivatives : speculate/ hedge/ arbitrage Diff between insurance and insurance against derivatives ? Answer: no secondary market for insurance Exchange traded market OTC Standardized Not standardized Default free : as counter party is the exchange Default Not flexible Flexible Swaps: IRS ( interest rate swaps) A has loan with bank at LIBOR ( London interbank offer rate : benchmark for rate viable Its fixed 1 period before date Now say interest rate is assumed to increase, but A cannot change the deal. You can swap A would pay fixed 5% to B for LIBOR so interest rate for A would change from floating to fixed A ------------ loan-------------- bank Swap: -------------- LIBOR----------- A -------------- 5% ----------------- B ----------------------LIBOR ------ The following matures on the
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