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DerivativesMarket andInstrumentDerivativesAlaleh Mani2013
Introduction Derivatives Market is bigger than stock Market. It comes from Securitization. It shifts Risk within partic...
Exchange trade and OTC Option and Future Contracts @Standardizedexchange trade backed by clearinghouse. (CME,CBOE ) Forw...
Contract Commitment Vs. Contingent Claim Forward Contract: Spot Contract is alegally promise to perform an action infutur...
Types of Participant andtrader Participants:1. Buyer of call2. Seller of call3. Buyer of put4. Seller of put Trader:1. H...
Arbitrage Two identical payoff have the same price. Certain pay off of a portfolio is more than riskfree rate. Market E...
HedgerReducing Risk with no guarantee of better off.Always avoid of exposure to risk. Using Forward ContractLocking the e...
SpeculatorLooking for a position of exposure. Using FutureIn hope of strength of currency:1. Purchase currency in spot ma...
Arbitrageur Locking in riskless profit in two or more Market Caused by discrepancy of price in two markets Last very sh...
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Introduction to Derivatives

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Introduction to Derivatives

  1. 1. DerivativesMarket andInstrumentDerivativesAlaleh Mani2013
  2. 2. Introduction Derivatives Market is bigger than stock Market. It comes from Securitization. It shifts Risk within participants. It is too risky and high leveraged . It Reduces transaction cost. It provides price information. Great deal of liquidity Attract different types of dealers
  3. 3. Exchange trade and OTC Option and Future Contracts @Standardizedexchange trade backed by clearinghouse. (CME,CBOE ) Forward, Swaps and Bond Option @ UnregulatedOTC / Dealer Market has no central location withhigh credit risk. Bigger than Exchange-trade witheasier term of contract and free negotiation. Electronic trading, Robo, Black box,automated, high frequency
  4. 4. Contract Commitment Vs. Contingent Claim Forward Contract: Spot Contract is alegally promise to perform an action infuture. Same as Forward, future, swap, Contingent Claim for broken certainthreshold. Same as Option Two options replicate a forward or futurecontract. Long position payoff: ST-K Short position payoff: K-ST
  5. 5. Types of Participant andtrader Participants:1. Buyer of call2. Seller of call3. Buyer of put4. Seller of put Trader:1. Hedger2. Speculator3. Arbitrageur
  6. 6. Arbitrage Two identical payoff have the same price. Certain pay off of a portfolio is more than riskfree rate. Market Efficiency. Mispricing asset bring up arbitrage opportunity. Combining uncertain returns in portfolio to resultcertain return.
  7. 7. HedgerReducing Risk with no guarantee of better off.Always avoid of exposure to risk. Using Forward ContractLocking the exchange rate in forward contract. ItNeutralizes by Fixing the price. Using OptionStock option is used to protect losing on stock priceand provide insurance.Upfront fees is needed
  8. 8. SpeculatorLooking for a position of exposure. Using FutureIn hope of strength of currency:1. Purchase currency in spot market.(need highinvestment)2. take long position in future contract on currency. Using optionIn hope of stock price growth:1.Purchse stock2.Long position in call option (more profitable)
  9. 9. Arbitrageur Locking in riskless profit in two or more Market Caused by discrepancy of price in two markets Last very short as Market get balance by demandand supply and transaction costs.

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