110 likes | 258 Views
The Trading Pitt. October 25 th , 2010. Types of Derivatives. Equity Debt Structured Products Securitization Currency and Commodity Swaps Over the Counter derivatives are often used by Hedge Funds and large institutions. Equity Derivatives. Preferred Stock Fixed Dividend
E N D
The Trading Pitt October 25th , 2010
Types of Derivatives • Equity • Debt • Structured Products • Securitization • Currencyand Commodity • Swaps • Over the Counter derivatives are often used by Hedge Funds and large institutions
Equity Derivatives • Preferred Stock • Fixed Dividend • Higher Place in Debt Structure • Less Share Price Movement • Less Volume • Specific Active Large Shareholder • Exotic Options • Knock Out/In • Barrier • Asian “Average Value” • Himalayan “Variable Payout”
Equity Options • Exchange Traded • Long Calls • Gives you the right to buy a stock at a price “strike” at a set time in the future • Long Puts • Gives you the right to sell a stock at a price “strike” at a set time in the future • Time Premium in Options • Option value to • Short Options • Selling options is unlimited to
Debt Derivatives • Interest Rates • Swaps • Fixed for Floating • Floating for Floating • Interest Rate Cap – Pay a maximum amount of interest for a set notional amount over life of product • Swaption – Option that is the exact same product just on swaps • Right to enter into but not the obligation • Also gets you out of a swap • Interest Rate Futures • Bond Futures, Eurodollars
Securitization • Mortgage Backed Securities • Pools Home Loans together • Splits it into tranches that investors can purchase • Commercial, Residential, Student Loans, Automotive, etc.
Structured products • Collateralized Debt Obligation • MBS of an MBS • CDO Squared • CDO of a CDO • Credit Linked Notes • CDS as a structured product with collateral • Synthetic Collateralized Debt Obligation • Bespoke Products • Difficult to price, maintain quotes
swaps • Credit Default Swaps • Insurance Policy on a debt offering. • Buyer of protection pays a premium • Seller of protection receives premium. • Credit Event causes seller to pay par for reference entity • Variance • Basic Volatility Play, Implied Volatility is higher than realized • Correlation • Implied correlation is also higher than realized • Dividend • More common in Europe
Links • www.markit.com • www.eurex.com • Check out Scribd.com • Financial Engineering • http://www.global-derivatives.com/index.php/pricing-models-topmenu-37
Questions? • Send us an email at thetradinpitt@gmail.com or me at steve.mcmannis@gmail.com • Check out the website http://www.pitt.edu/~sorc/trade/ • Trading Pitt Logo? • Interested in Opportunities?