《金融期货与期权》（英文版） Chapter 6 Options Futures, and Other Derivatives

Swaps Chapter 6 Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.1 Swaps Chapter 6

6.2 Nature of Swaps A swap is an agreement to exchange cash flows at specified future times according to certain specified rules Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.2 Nature of Swaps A swap is an agreement to exchange cash flows at specified future times according to certain specified rules

An Example of a“ Plain vanle”63 Interest Rate Swap An agreement by Microsoft to receive 6-month LiBOr pay a fixed rate of 5% per annum every 6 months for 3 years on a notional principal of $100 million Next slide illustrates cash flows Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.3 An Example of a “Plain Vanilla” Interest Rate Swap • An agreement by Microsoft to receive 6-month LIBOR & pay a fixed rate of 5% per annum every 6 months for 3 years on a notional principal of $100 million • Next slide illustrates cash flows

Cash flows to microsoft 6.4 (See Table 6.1, page 127) -----Millions of dollars--- LIBOR FLOATING FXED Date Rate Cash flow Cash Flow Cash Flow Mar.5,20014.2% sept.5,200148 +2.10-2.50 0.40 Mar.5,20025.3% +2.40-2.50 0.10 sept.5,200255 +2.65 -2.50 +0.15 Mar.5,20035.6% +2.75 -2.50 +0.25 Sept.5,200359% 2.80 -2.50 +0.30 Mar.5,20046.4% +2.952.50 +0.45 Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.4 ---------Millions of Dollars--------- LIBOR FLOATING FIXED Net Date Rate Cash Flow Cash Flow Cash Flow Mar.5, 2001 4.2% Sept. 5, 2001 4.8% +2.10 –2.50 –0.40 Mar.5, 2002 5.3% +2.40 –2.50 –0.10 Sept. 5, 2002 5.5% +2.65 –2.50 +0.15 Mar.5, 2003 5.6% +2.75 –2.50 +0.25 Sept. 5, 2003 5.9% +2.80 –2.50 +0.30 Mar.5, 2004 6.4% +2.95 –2.50 +0.45 Cash Flows to Microsoft (See Table 6.1, page 127)

6.5 Typical Uses of an Interest Rate Swap Converting a Converting an liability from investment from fixed rate to fixed rate to floating rate floating rate -floating rate to -floating rate to fixed rate fixed rate Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.5 Typical Uses of an Interest Rate Swap • Converting a liability from – fixed rate to floating rate – floating rate to fixed rate • Converting an investment from – fixed rate to floating rate – floating rate to fixed rate

Intel and microsoft ( Ms) 6.6 Transform a liability (Figure 6.2, page 128) 5.2 Intel MS LIBOR+0.1% LIBOR Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull Intel and Microsoft (MS) 6.6 Transform a Liability (Figure 6.2, page 128) Intel MS LIBOR 5% LIBOR+0.1% 5.2%

6.7 Financial Institution is Involved (Figure 6.4, page 129) 4.985% 5.015 5.29 el EI MS LIBOR+0. 1% LIBOR LIBOR Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.7 Financial Institution is Involved (Figure 6.4, page 129) F.I. LIBOR LIBOR LIBOR+0.1% 4.985% 5.015% 5.2% Intel MS

68 Intel and microsoft ms) Transform an asset (Figure 6.3, page 128) 5% 4.7% Intel MS LIBOR-0.25% ⅠBOR Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.8 Intel and Microsoft (MS) Transform an Asset (Figure 6.3, page 128) Intel MS LIBOR 5% LIBOR-0.25% 4.7%

6.9 financial institution is involved (See Figure 6.5, page 129) 4.985 5.015 4.7 Intel EI MS LIBOR-0.25% LIBOR LIBOR Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.9 Financial Institution is Involved (See Figure 6.5, page 129) Intel F.I. MS LIBOR LIBOR 4.7% 4.985% 5.015% LIBOR-0.25%

6.10 The Comparative Advantage Argument(Table 6.4, page 132) AAACorp wants to borrow floating BBBCorp wants to borrow fixed Fixed Floating AAACorp 10.00% 6-month LIBOR +0. 30% BBBCorp 1120%6-month LIBOR+ 1.00% Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull

Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 6.10 The Comparative Advantage Argument (Table 6.4, page 132) • AAACorp wants to borrow floating • BBBCorp wants to borrow fixed Fixed Floating AAACorp 10.00% 6-month LIBOR + 0.30% BBBCorp 11.20% 6-month LIBOR + 1.00%