Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose...

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Lecture # 02 1.1 Introduction

Transcript of Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose...

Page 1: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Lecture # 02

1.1

Introduction

Page 2: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

The Nature of Derivatives

1.2

A derivative is an instrument whose value depends on the values of other more basic underlying variables

Page 3: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Examples of Derivatives

1.3

•Futures Contracts

•Forward Contracts

•Swaps

•Options

Page 4: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Derivatives Markets

1.4

Exchange tradedTraditionally exchanges have used the

open-outcry system, but increasingly they are switching to electronic trading

Contracts are standard there is virtually no credit risk

Over-the-counter (OTC)A computer- and telephone-linked network

of dealers at financial institutions, corporations, and fund managers

Contracts can be non-standard and there is some small amount of credit risk

Page 5: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Size of OTC and Exchange Markets(Figure 1.1, Page 3)

1.5

Source: Bank for International Settlements. Chart shows total principal amounts for OTC market and value of underlying assets for exchange market

020406080

100120140160180200220240

Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04

Size of Market ($ trillion)

OTC

Exchange

Page 6: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Ways Derivatives are Used

1.6

To hedge risksTo speculate (take a view on the

future direction of the market)To lock in an arbitrage profitTo change the nature of a liabilityTo change the nature of an

investment without incurring the costs of selling one portfolio and buying another

Page 7: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Forward Contracts

1.7

Forward contracts are similar to futures except that they trade in the over-the-counter market

Forward contracts are particularly popular on currencies and interest rates

Page 8: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

Foreign Exchange Quotes for GBP June 3, 2003 (See page 4)

1.8

Bid Offer

Spot 1.6281 1.6285

1-month forward 1.6248 1.6253

3-month forward 1.6187 1.6192

6-month forward 1.6094 1.6100

Page 9: Lecture # 02 1.1 Introduction. The Nature of Derivatives 1.2 A derivative is an instrument whose value depends on the values of other more basic underlying.

References

1.9

Adopted from Options, Futures, and Other Derivatives, 6th Edition, Copyright © John C. Hull 2005


Derivatives Derivative is a financial contract of pre-determined duration, whose value is derived from the value of an underlying asset. It includes.

Derivatives Derivative is a financial contract of pre-determined duration, whose value is derived from the value of an underlying asset. It includes.

Understanding Brand Consistency from Web Contentdatanalytics101.com/wp-content/uploads/2019/07/... · ality in social media, with the underlying hypothesis that brand perception depends

Understanding Brand Consistency from Web Contentdatanalytics101.com/wp-content/uploads/2019/07/... · ality in social media, with the underlying hypothesis that brand perception depends

Treatment. DEPENDS on the underlying cause Metabolic : correction Structural abnormality: seizure control + consider surgery Tumor Vascular Idiopathic.

Treatment. DEPENDS on the underlying cause Metabolic : correction Structural abnormality: seizure control + consider surgery Tumor Vascular Idiopathic.

BBK3273 | International Finance - lecturenotes638 · PDF file1. What is a Currency Derivative? • A currency derivative is a contract whose price is derived from the value of an underlying

BBK3273 | International Finance - lecturenotes638 · PDF file1. What is a Currency Derivative? • A currency derivative is a contract whose price is derived from the value of an underlying

Barrier Optionssaurabh.com/Site/Talks_files/qf301_barrier_small.pdfBarrier Options ¥ Payo$ depends on not just the terminal level of underlying asset but also its path. ¥ Both the

Barrier Optionssaurabh.com/Site/Talks_files/qf301_barrier_small.pdfBarrier Options ¥ Payo$ depends on not just the terminal level of underlying asset but also its path. ¥ Both the

MULTIVARIATE GARCH MODELS - Dipartimento di …€¦ ·  · 2012-08-31Outline 1 Introduction ... pricing of derivative contracts based on a more than one underlying asset ... Three

MULTIVARIATE GARCH MODELS - Dipartimento di …€¦ ·  · 2012-08-31Outline 1 Introduction ... pricing of derivative contracts based on a more than one underlying asset ... Three

ESPA CASH DOLLAR - erstebroker.hu€¦ · ** Total derivative risk taking offsetting and hedging into account = total of the equivalent values of the underlying assets in % of the

ESPA CASH DOLLAR - erstebroker.hu€¦ · ** Total derivative risk taking offsetting and hedging into account = total of the equivalent values of the underlying assets in % of the

Derivative Market Derivative Market Futures Forwards Options.

Derivative Market Derivative Market Futures Forwards Options.

Impact of Derivative Trading on Volatility of the ... nair_submission_25.pdf · Impact of Derivative Trading on Volatility of the Underlying: Evidence from Indian Stock Market ...

Impact of Derivative Trading on Volatility of the ... nair_submission_25.pdf · Impact of Derivative Trading on Volatility of the Underlying: Evidence from Indian Stock Market ...

“A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset)”

“A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset)”

Volatility Derivatives...Volatility derivatives are a class of derivative securities where the payoff explicitly depends on some measure of the volatility of an underlying asset. Prominent

Volatility Derivatives...Volatility derivatives are a class of derivative securities where the payoff explicitly depends on some measure of the volatility of an underlying asset. Prominent

Using Derivatives to Manage Interest Rate Risk. Derivatives A derivative is any instrument or contract that derives its value from another underlying.

Using Derivatives to Manage Interest Rate Risk. Derivatives A derivative is any instrument or contract that derives its value from another underlying.

Derivative(Final Derivative)

Derivative(Final Derivative)

A Derivative is a financial instrument whose value depends on other

A Derivative is a financial instrument whose value depends on other

Options Week 7. What is a derivative asset? Any asset that “derives” its value from another underlying asset is called a derivative asset. The underlying.

Options Week 7. What is a derivative asset? Any asset that “derives” its value from another underlying asset is called a derivative asset. The underlying.

1 CHAPTER 13 Financial Future Markets. 2 Derivatives A derivative transaction involves no actual transfer of ownership of the underlying assets at the.

1 CHAPTER 13 Financial Future Markets. 2 Derivatives A derivative transaction involves no actual transfer of ownership of the underlying assets at the.

Interest rate derivative pricing and calibration in ... rate... · In European markets underlying rates of interest rate derivatives are typically Eu-ribor or Libor, these rates are

Interest rate derivative pricing and calibration in ... rate... · In European markets underlying rates of interest rate derivatives are typically Eu-ribor or Libor, these rates are

Introduction to Derivative Instruments Link “n” Learn · © 2018 Deloitte 8 Linear Instruments • Bilateral contract in which two counterparties agree to buy/sell an underlying

Introduction to Derivative Instruments Link “n” Learn · © 2018 Deloitte 8 Linear Instruments • Bilateral contract in which two counterparties agree to buy/sell an underlying

©David Dubofsky and 1-1 Thomas W. Miller, Jr. Chapter 1 An Overview of Derivative Securities A derivative is an instrument whose value depends on the value.

©David Dubofsky and 1-1 Thomas W. Miller, Jr. Chapter 1 An Overview of Derivative Securities A derivative is an instrument whose value depends on the value.

Risks vs Return with Binary Option Trading › ddd4 › bffad48d... · derivative, the value of which is determined by the underlying currency exchange rate. Derivatives can be based

Risks vs Return with Binary Option Trading › ddd4 › bffad48d... · derivative, the value of which is determined by the underlying currency exchange rate. Derivatives can be based