Options
You'll learn how interest rate options work as hedging tools and how to calculate their outcomes in exam questions. This video covers the key difference between call and put options for borrowing and depositing, the two types of options available (OTC and exchange-traded), and the four-step calculation process that
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In this lesson
- 0:00 Interest rate options explained
- 1:11 Call and put options for deposits and borrowing
- 2:00 OTC versus exchange-traded options
- 2:52 Four-step options calculation process
- 4:19 Choosing strike prices strategically
- 6:16 Worked example: hedging a cash shortage
- 10:10 Calculating effective borrowing rate
About this lesson
sets options apart from futures hedges. You'll discover why options are more expensive than other derivatives but offer crucial flexibility—the ability to walk away if interest rates move favourably—and work through a complete worked example showing how to determine the most beneficial strike price and calculate your effective borrowing rate. This is essential knowledge for FM, AFM, and SBL papers where interest rate risk management appears regularly.
Duration: 12m
Transcript
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