Derivatives Management
Introduction to Derivatives
Concept of Derivatives
A derivative is a financial instrument, essentially a contract, whose value is derived from the v...
Evolution of Derivatives
Derivatives likely originated in simpler forms, possibly as agreements between merchants or farme...
Participants and Functions of Derivatives Markets
Participants: Hedgers: These individuals or entities use derivatives to reduce their exposure t...
Exchange-Traded and Over-the-Counter Derivatives
Exchange-Traded Derivatives: Centralized Trading: These derivatives are traded on organized exc...
Types of Derivatives
1. Forward Contracts Definition: A forward contract is a private and customizable agreement betwe...
Classification Based on the Underlying Asset
Derivatives can be classified based on the type of underlying asset: Equity Derivatives: Underl...
Myths about Derivatives
Derivatives are always speculative and risky: While derivatives can be used for speculation, th...
Forwards and Futures Market
Concept of Forward and Futures Contracts
Both forward and futures contracts are agreements to buy or sell an underlying asset at a predete...
Features of Forward and Futures Contracts
Forward Contracts: Customization: The key feature is flexibility. Parties can negotiate all te...
Types of Forward and Futures Contracts
While the underlying assets can vary widely, here are some common categories: Forward Contracts: ...
Forward and Futures Trading Mechanism
Forward Contract Trading: Negotiation: Two parties (e.g., a buyer and a seller) directly negoti...
Difference between Forwards and Futures
Feature Forward Contract Futures Contract Trading Over-the-counter (OTC) Exchange-traded ...
Forward and Futures Pricing
Future Pricing
The futures price is the price at which a futures contract trades on an exchange. It represents t...
Computation of Future Payoff
The payoff of a futures contract at expiration is the difference between the futures price at whi...
Margin Account Operation
Margin accounts are a crucial aspect of futures trading. They serve as a performance bond, ensuri...
Lot size, Initial Margin, Mark-to-Market settlement
Lot Size Lot size refers to the standardized quantity of the underlying asset specified in a futu...
Open Interest and Volume in Future Contracts
Volume: Definition: The number of futures contracts traded during a specific period (usually a ...
Hedging using Futures
Hedging is a risk management strategy that involves taking an offsetting position in a related as...
Arbitrage using Futures
Arbitrage is the simultaneous purchase and sale of an asset in different markets to profit from p...
Options Market
Concept of Options
An option is a financial derivative contract that gives the buyer the right, but not the obligati...
Development of Options Contracts
The concept of options has been around for centuries, with early forms of options used in ancient...
Types of Options
There are two fundamental types of options: Call Options: Give the buyer the right to buy the ...
Options Basics
Exercise Price (Strike Price) Definition: The predetermined price at which the underlying asset...
Payoff from Options
The payoff from an option at expiration depends on the relationship between the strike price and ...