Derivatives
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Derivatives- I
Mapping to Curriculum
• Reading 60: Derivative Markets and Instruments • Reading 61: Forward Markets and Contracts
• Reading 62: Future Markets and Contracts
Expect around 6 questions in the exam from today’s lecture
© Neev Knowledge Management – Pristine
2
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Key Concepts
• Difference Between OTC And Exchange Traded Contracts • Payoffs of Futures and Forwards • FRA‘s • Margins • Types of Futures
© Neev Knowledge Management – Pristine
3
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Introduction
What are the fundamental assets trading in the market?
1. 2. 3. 4.
Stocks Bonds Commodities Currency
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4
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What Is A Derivative?
D
D – Derivative
A
A – Underlying, a fundamental asset For example, a Stock, Bond, Currency, Commodity
The value of D changes as A moves
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5
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Derivatives Payoff
Non-Linear Payout Linear Payout Y-axis → Profit/Loss on (D)
X-axis → Value of Underlying (A)
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6
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Types Of Derivatives
Derivatives
Linear (Have Linear Payoffs)
Non-Linear (Have Non-Linear Payoffs)
Forwards/Future s (D)
Options (D)
Swaps, Exotics (D2)
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Definition
• Derivative: It is a financial instrument whose value is derived (hence the name derivative) from the value on an underlying asset – Underlying asset: It can be stocks, indices, bonds, commodities, currency, rates, etc.
• Main types of derivatives (explained later): – Forwards and Futures – Swaps – Options – Exotics
Exchange traded: • Traditionally open-outcry system • Switching to electronic trading • Contracts are standardized • Example: - Europe: Liffe: http://www.liffe.com - US: Chicago Board of Trade http://www.cbot.com
• Trading
Derivatives- I
Mapping to Curriculum
• Reading 60: Derivative Markets and Instruments • Reading 61: Forward Markets and Contracts
• Reading 62: Future Markets and Contracts
Expect around 6 questions in the exam from today’s lecture
© Neev Knowledge Management – Pristine
2
www.edupristine.com
Key Concepts
• Difference Between OTC And Exchange Traded Contracts • Payoffs of Futures and Forwards • FRA‘s • Margins • Types of Futures
© Neev Knowledge Management – Pristine
3
www.edupristine.com
Introduction
What are the fundamental assets trading in the market?
1. 2. 3. 4.
Stocks Bonds Commodities Currency
© Neev Knowledge Management – Pristine
4
www.edupristine.com
What Is A Derivative?
D
D – Derivative
A
A – Underlying, a fundamental asset For example, a Stock, Bond, Currency, Commodity
The value of D changes as A moves
© Neev Knowledge Management – Pristine
5
www.edupristine.com
Derivatives Payoff
Non-Linear Payout Linear Payout Y-axis → Profit/Loss on (D)
X-axis → Value of Underlying (A)
© Neev Knowledge Management – Pristine
6
www.edupristine.com
Types Of Derivatives
Derivatives
Linear (Have Linear Payoffs)
Non-Linear (Have Non-Linear Payoffs)
Forwards/Future s (D)
Options (D)
Swaps, Exotics (D2)
© Neev Knowledge Management – Pristine
7
www.edupristine.com
Definition
• Derivative: It is a financial instrument whose value is derived (hence the name derivative) from the value on an underlying asset – Underlying asset: It can be stocks, indices, bonds, commodities, currency, rates, etc.
• Main types of derivatives (explained later): – Forwards and Futures – Swaps – Options – Exotics
Exchange traded: • Traditionally open-outcry system • Switching to electronic trading • Contracts are standardized • Example: - Europe: Liffe: http://www.liffe.com - US: Chicago Board of Trade http://www.cbot.com
• Trading