Purchase Solution

Index and Interest Rate Futures

Not what you're looking for?

Ask Custom Question

Can you please provide me with brief response to my questions noted below

Stock Index Futures
How are stock index futures used?
How are stock index futures priced?
What is basis convergence?
How do you hedge with stock index futures?

Fundamentals of Interest Rate Futures
What are T-bills and Eurodollars, and what are their futures?
How do you hedge or speculate with T-bill and T-bonds futures?
What is the delivery process?
How do you price interest rate futures?

Thank you

Purchase this Solution

Solution Summary

How are stock index futures priced?

Solution Preview

Hello!
Here are your answers.

How are stock index futures used?
Stock index futures are mostly used for either hedging or speculating. If you are anticipating that the stock market as a whole will go up, you could buy stock index futures. As the index goes up, so will the futures contracts on it, so the buying position will appreciate. Hedgers can use them to hedge a portfolio that is correlated to the market. The higher the beta of the portfolio, the more futures contracts that will be needed in order to hedge it against moves in the index.

How are stock index futures priced?
I have already given you the formula for pricing these futures in my answer to question 69663. It depends on the current value of the stock index, its dividend yield, the riskfree rate and the time to maturity.

What is basis convergence?
Recall that the ...

Purchase this Solution


Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.