Académique Documents
Professionnel Documents
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A Brief History
of financial institutions
2 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Big Bang
1986: the London market
Open-Outcry
…and electronic trading platforms
- 1986: LSE
- 1994: Boursa Italia
- 1997: Toronto stock exchange
4 7 November, 2012
- After 2000: most exchanges
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Glass-Steagall Act
Banking Act of 1933
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Origins of Derivatives
Forwards
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Origins of Derivatives
Futures
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Origins of Derivatives
Options
• Options are like futures, but the holder has no obligation to buy
(or sell) at the price that is fixed now (the strike price)
• First active trading of options was on the Bourse de Paris
• In 1900, more than 800 French shares and bonds, and nearly
300 foreign stocks were quoted daily by the agents de change
• About 10% of the shares were sold at a premium because they
included a 3-month at-the-money put option
o After 3 months, the holder has the right to sell the share back
at the price he originally paid
• A put option is an insurance against a price fall
11 7 November, 2012
Vanilla Options
Pay-offs and types
12 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Black-Scholes-Merton Model
1986
• Merton (1973) and Black & Scholes (1973)
o First simple no-arbitrage model for pricing a vanilla option
o Based on a constant volatility assumption
• Marked the beginning of ….
o Massive growth in trading volumes for options on exchanges
o Development of stochastic volatility option pricing models
• Parameters calibrated to market prices of vanilla option
• Used to find no-arbitrage prices of OTC exotic options
• Black died in 1995, but Scholes and Merton won the Nobel
Prize in 1997
14 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
15 7 November, 2012
Financial
Financial
Institutions
Institutions
($24 trillion)
($351 trillion)
Non-Financial
Non-Financial Institutions ($5
Institutions trillion)
($46 trillion)
16 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Futures Options
Interest Rate Interest Rate
($22 trillion) ($32 trillion)
Currency
Currency ($0.2
($0.08 trillion)
trillion)
Equity Index
Equity Index ($2 trillion)
($1 trillion)
17 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
Carol Alexander
University of Sussex, 7 November 2012
Hot Topics in Financial Markets
Lecture 3 – The Great Casino
21 7 November, 2012
Carol Alexander
University of Sussex, 7 November 2012