Chapter 23 – Futures, Swaps, and Risk Management
23-1
CHAPTER TWENTY-THREE
FUTURES, SWAPS, AND RISK MANAGEMENT
CHAPTER OVERVIEW
This chapter discusses the various stock index futures, empirical evidence on the pricing of these
LEARNING OBJECTIVES
After studying this chapter, the student should be have a solid understanding of the various
PRESENTATION OF MATERIAL
23.1 Foreign-Exchange Futures
The chapter opens with a presentation of futures markets for foreign exchange. There is a large
23.2 Stock Index Futures
Stock index contracts are available on both domestic and international indexes. The advantages
of investing in stock using index contracts include lower transaction costs, better timing and
allocation and quicker execution on acquiring or disposing of a position. Table 23.1 presents
Chapter 23 – Futures, Swaps, and Risk Management
23.3 Interest Rate Futures
Interest rate futures contracts are available on a variety of domestic and international instruments.
23.4 Swaps
Plain swaps are basically a series of forward contracts. Interest rate swaps, first described in
Chapter 16, are used by to manage interest rate risk. The market originally developed to allow
banks and thrift institutions to obtain longer-term fixed-rate financing that better matched their
23.5 Commodity Futures Pricing
The chapter concludes by pricing commodities. The major difference between commodities and