Financial Derivatives

Basic Strategies Long Call: Purchasing a call option to profit from an anticipated increase in...

Spreads involve combining multiple options to create a position with defined risk and reward char...

Combinations involve holding positions in both call and put options simultaneously. 1. Straddle ...

The Cost of Carry Model determines the futures or forward price of an asset by considering the co...

The Expectations Approach posits that the futures price reflects the market's consensus of the ex...

Contango A market condition where futures prices are higher than the current spot price. This sit...

In futures trading, margin accounts are used to manage credit risk between parties. They ensure t...

Options are financial derivatives that grant the holder the right, but not the obligation, to bu...

The concept of options has evolved significantly over time: Ancient Greece: The earliest recor...

By Underlying Asset: Equity Options: Options on individual stocks. Index Options: Options on s...

1. Exercise Price (Strike Price): The price at which the underlying asset can be bought or sold i...

Definitions: In-the-Money (ITM): Call Option: ( S_T > K ) Put Option: ( S_T < K ) At-the-...

Intrinsic Value and Time Value of an Option Intrinsic Value: The immediate gain if the option is ...

Forwards and futures contracts are two fundamental types of financial derivatives that allow mark...

Forwards and futures contracts are two primary types of financial derivatives used for hedging, s...

Forwards Contracts 1. Negotiation and Agreement Customization: Forward contracts are customize...

Aspect Forwards Contracts Futures Contracts Trading Venue Over-the-counter (OTC) market, p...

Introduction Derivatives are financial instruments whose value is derived from the value of an un...

Financial derivatives have evolved significantly over centuries, transforming from simple, inform...

Financial derivatives are powerful instruments that play a vital role in the global financial sys...

Financial derivatives can be broadly categorized into two main types based on where and how they ...

1. Forwards Contracts A forward contract is a customized agreement between two parties to buy or...

Swaps Swaps are contractual agreements between two parties to exchange cash flows or financial in...

The primary economic motives for engaging in swaps include: Risk Management: Hedge against adve...

Swaps are versatile tools in risk management strategies: Interest Rate Risk: Lock in fixed rate...

Warrants are financial instruments granting the holder the right to purchase a company's stock at...

Weather derivatives provide payouts based on weather-related events, such as temperature, rainfal...

The price of an option is determined by multiple variables: Underlying Asset Price: The curren...

1. Binomial Option Pricing Model The binomial model provides a discrete-time framework for option...

Introduced in 1973, the Black-Scholes model provides a closed-form solution for pricing European-...

The "Greeks" are measures of the sensitivity of an option's price to various factors: Delta (Δ)...