1 / 14

140 likes | 295 Vues

Futures Hedging Examples. Hedging Examples. T-Bills to Buy with T-Bill Futures Debt Payment to Make with Eurodollar Futures Futures in Portfolio Hedging. T-Bills, Notes & Bonds. Treasury Securities: < 1 yr. Maturity: T-Bills, Discount Basis

Télécharger la présentation
## Futures Hedging Examples

**An Image/Link below is provided (as is) to download presentation**
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.
Content is provided to you AS IS for your information and personal use only.
Download presentation by click this link.
While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

**Hedging Examples**• T-Bills to Buy with T-Bill Futures • Debt Payment to Make with Eurodollar Futures • Futures in Portfolio Hedging**T-Bills, Notes & Bonds**• Treasury Securities: • < 1 yr. Maturity: T-Bills, Discount Basis • >1 yr., < 10 yr. Maturity: T-Notes, Coupon Bond • >10 yr. Maturity: T-Bonds, Coupon Bond**T-Bills**• Pricing (Discount Basis) • (1 - discount*(91/360))*$1million • Mar 19 w/ 27 days to Maturity priced at a discount of 4.68. Price on $1 million Face: (1-.0468(27/360))*$1 million = $996,490**T-Bill Futures**• Delivery of 91-day T-Bill at maturity date. So, a March futures delivers a June T-Bill. • Pricing on a discount basis, but quoted %. • Feb. 19, March 95.02 ==> discount = 4.98 100 - (4.98*91/360) ----------------------- * $1 million = $987,412 100**Hedging a $25MM T-Bill Purchase**• Previous T-Bill futures has us buy: $25mill / $987,412 = 25.3187 contracts • If rates at delivery are 5.5%, T-Bills cost: (1-(.055*91/360))*$1mill = $986,097 • Futures lost: (986,097 - 987,412)*25.3187 = (33294), leaving $24,966,706 for T-Bills, but this still buys us: $ 24,966,706 / $986,097 = 25.3187 $1mill. T-Bills**Hedging a T-Bill Purchase**• If rates at delivery are 4.5%, T-Bills cost: (1-(.045*91/360))*$1mill = $988,625 • Futures gained: (988,625 - 987,412)*25.3187 = +30,712, leaving $25,030,712 for T-Bills, but this just buys us: $25,030,712/ $988,625 = 25.3187 $1mill. T-Bills • So, whether rates go up or down, buying March T-Bill futures locks in delivery.**Eurodollar Futures**• Among the most liquid and actively traded futures contracts in the world • Eurodollar: a dollar deposit in a U.S. or foreign bank outside the U.S. • The contract: • Underlying: 90-day hypothetical Eurodollar CD • Contract Size: $1 mm face value • One basis point (.01%) is worth $25 • Contract Months: March, June, Sep, Dec, serial months, spot month • Maturities: Available through 10 years**Hedge Floating Rate Payment**• Assume an unknown Floating Rate to be paid in 3-months on $100,000,000. • Short 100 ($1,000,000) Euro$ Futures today at 94.555 (or Yield of 5.445%). • Settle in 3-months at 94.35 or 94.75. Use proceeds from futures to make debt payment.**Hedge Floating Rate Payment**• Futures settles at spot of 94.35 (5.65%). Floating Payment is .0565*.25*100M = $1,412,500 • Futures settles for 94.555-94.35 = .205 (where each .01 = $25), for a gain of 20.5*$25*100 contracts = $51,250 • Net Debt Payment = $1,412,500 - $51,250 = $1,361,250**Hedge Floating Rate Payment**• Futures settles at spot of 94.75 (5.25%). Floating Payment is .0525*.25*100M = $1,312,500 • Futures settles for 94.555-94.75 = -.195 (where each .01 = $25), for a loss of -19.5*$25*100 contracts = - $48,750 • Net Debt Payment = $1,312,500 + $48,750 = $1,361,250**Hedging: Futures**• No up front transfer of funds, but daily marking-to-market.**Value**$7,000,000 portfolio -------------- * contracts, or, -------------- * 1.40 = 32.67 contracts Value $300,000 futures Hedging: Futures • Number of Futures Contracts to Hedge is a function of Relation of Portfolio Returns with Index Returns (Portfolio Beta with Index). • Assume a $7 mill. Portfolio that has a Beta of 1.40 with some Index. The Index Futures is currently at 600 and it trades for $500 per Index point.

More Related