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The ebook offers many formulation and mathematical derivation of the well-known pricing versions that we use with no even pondering how they have been created and what assumptions they're dependent upon. you would be shocked by means of the variety of assumptions we take without any consideration whereas they do not fairly make experience in a pragmatic marketplace.
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Additional info for Introduction to the Economics and Mathematics of Financial Markets
Finally, both long and short positions in futures contracts involve the possibility of a ﬁnancial responsibility. Both sides of the contract are requested to have an account that is upgraded every day as the contract is marked to market. In addition to charging or crediting the difference of the futures prices between today and yesterday, the accounts may be required to keep additional collateral in order to satisfy margin requirements. Mounting losses might force the investor to exit the futures contract before maturity.
00? †22. , but you have only $60,000 to invest. You buy the $200,000 worth at margin. The intermediary requires a maintenance margin of $145,000. Four months from now the value of the total stock purchased falls to $125,000. What is the amount of the margin call the intermediary would send you? 23. 15 per share as his service fees. 50 How much would you have to pay for 100 shares? What proportion of the value of the deal is transaction costs? Financial Markets 29 Further Readings There are many excellent books that describe the organization and functioning of ﬁnancial markets and institutions.
As in the preceding example, a speciﬁc way to do so is to ask the intermediary to buy a larger amount of stock than the investor is paying for and have the intermediary pay for the difference. The stock so purchased is kept by the intermediary as a guarantee. This procedure is called buying at margin. The initial margin and the maintenance margin will determine the value of the required collateral relative to the value of the loan (which is ﬁxed, from the moment the purchase takes place). Initially, the collateral is the stock purchased, and its value exceeds that of the loan, since all the stock, including that which the investor paid for, is used as collateral.