Under an agreement signed by the big board and the Chicago mercantile Exchange, trading was temporarily halted in Chicago. After the trading halt in the s p 500 pit in Chicago, waves of selling continued to hit stocks themselves on the big board, and specialists continued to notch prices down. As a result, the link between the futures and stock markets ripped apart. Without the guidepost of stock-index futures - the barometer of where traders think the overall stock market is headed - many traders were afraid to trust stock prices"d on the big board. The futures halt was even assailed by big board floor traders. "It screwed things up said one major specialist. This confusion effectively halted one form of program trading, stock index arbitrage, that closely links the futures and stock markets, and has been blamed by some for the market's big swings.
For example, their selling caused trading halts to be declared in usair Group, which closed down 3 7/8 to 41 1/2, delta air Lines, which fell 7 3/4 to 69 1/4, and Philips short Industries, which sank 3 to 21 1/2. These stocks eventually reopened. But as panic spread, speculators began to sell blue-chip stocks such as Philip Morris and International Business Machines to offset their losses. When trading was halted in Philip Morris, the stock was trading at 41, down 3 3/8, while ibm closed 5 5/8 lower at 102. Selling snowballed because of waves of automatic "stop-loss" orders, which are triggered by computer when prices fall to certain levels. Most of the stock selling pressure came from Wall Street professionals, including computer-guided program traders. Traders said most of their major institutional investors, on the other hand, sat tight. Now, at 3:07, one of the market's post-crash "reforms" took hold as the s p 500 futures contract had plunged 12 points, equivalent to around a 100-point drop in the dow industrials.
Wall Street's takeover-stock speculators, or "risk arbitragers had placed unusually large bets that a takeover would succeed and ual stock would rise. Edt, came the sickening news: The big board was halting trading in ual, "pending news." On the exchange floor, "as soon as ual stopped trading, we braced for a panic said one top floor trader. Several traders could be seen shaking their heads when the news flashed. For weeks, the market had been nervous about takeovers, after Campeau corp. 's cash crunch spurred concern about the prospects for future highly leveraged takeovers. And 10 minutes after the ual trading halt came news that the ual group couldn't get financing for its bid. At this point, the dow was down about 35 points. Arbitragers couldn't dump their ual stock - but they rid themselves of nearly every "rumor" stock they had.
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Speculators are calling for a degree of liquidity that is not there in the market.". Many resume money managers and some traders had already left their offices early Friday afternoon on a warm autumn day - because the stock market was so quiet. Then in a lightning plunge, the dow Jones industrials in barely an hour surrendered about a third of their gains this year, chalking up a 190.58-point,.9, loss on the day in gargantuan trading volume. Final-hour trading accelerated to 108.1 million shares, a record for the big board. At the end of the day, 251.2 million shares were traded.
The dow Jones industrials closed at 2569.26. The dow's decline was second in point terms only to the 508-point Black monday crash that occurred Oct. In percentage terms, however, the dow's dive was the 12th-worst ever and the sharpest since the market fell 156.83, or 8, a week after Black monday. The dow fell.6 on Black monday. Shares of ual, the parent of United Airlines, were extremely active all day friday, reacting to news and rumors about the proposed.79 billion buy-out of the airline by an employee-management group.
The multiperiod bionomial Model, the Black-Scholes Option Pricing Formula, applications of the Black-Scholes Formula. Trading and Hedging of Options Utility functions and Portofolio theory Interest Rate derivatives and Related Models Risk measurement and Risk management Grading (approximate homework: 25 Midterms i ii: 40 Final: 35 Assignments: Homeworks will be assigned and collected). Start, no, it wasn't Black monday. But while the new York Stock Exchange didn't fall apart Friday as the dow Jones Industrial average plunged 190.58 points - most of it in the final hour - it barely managed to stay this side of chaos. Some "circuit breakers" installed after the October 1987 crash failed their first test, traders say, unable to cool the selling panic in both stocks and futures. The 49 stock specialist firms on the big board floor - the buyers and sellers of last resort who were criticized after the 1987 crash - once again couldn't handle the selling pressure.
Big investment banks refused to step up to the plate to support the beleaguered floor traders by buying big blocks of stock, traders say. Heavy selling of Standard poor's 500-stock index futures in Chicago relentlessly beat stocks downward. Seven Big board stocks - ual, amr, bankAmerica, walt Disney, capital Cities/abc, philip Morris and Pacific Telesis Group - stopped trading and never resumed. The finger-pointing has already begun. "The equity market was illiquid. Once again the specialists were not able to handle the imbalances on the floor of the new York Stock Exchange said Christopher Pedersen, senior vice president at Twenty-first Securities Corp. Countered James Maguire, chairman of specialists Henderson Brothers Inc.: "It is easy to say the specialist isn't doing his job. When the dollar is in a free-fall, even central banks can't stop.
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Additional Text: (on reserve in the library john. Hull, Options Futures and Other Derivatives, fifth Edition (Prentice hall nj 2002). Class Times: tuesday and Thursday: 12:30pm - 1:45pm. Course outline (Tentative option Pricing and Portfolio theory beauty and. A random Walk down the wall Street. Financial Markets and Instruments, elements From Basic Probability Theory, interest Rates and Present Value analysis. Normal Distribution of Stock returns, introduction to Option Pricing, capital Asset Pricing Model and Arbitrage Pricing Theory.
engineering. The focus is on mathematical methods in pricing of derivative securities, portfolio management and on other related questions of mathematical finance. The emphasis will be on individual and group projects. Prerequisites: Required: math 141; and either stat 400 or bmgt 231. Recommended: math 240, 241 or 246. Main Text: Sheldon. Ross, An Introduction to mathematical Finance, options and other Topics. Second Edition (Cambridge University Press, 2003).
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