Published on


Published in: Economy & Finance
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide


  2. 2. Topics Derivatives  Put call parity Futures  Bsopm greeks Forwards  Volatility strategies Mark to mark  Income strategies Basis and convergence  Pricing futures Individuals in the future industry- hedgers speculators arbitrageurs Swaps Options Intrinsic value and Time value Margin Index options Implied volatility Black scholes option pricing model
  3. 3. What are Derivatives??? Derivatives is one whose performance is based on the behavior of the price of an underlying asset. The underlying asset can be equity, fixed income instruments, interest rates, foreign exchange or commodities.
  4. 4. Major events in derivative market The first exchange for trading in derivatives appeared to be in London. The first “FUTURES "contracts are generally traced to the yodoyo rice market in Osaka ,japan around 1650. The first commodity futures exchange was set up in 1875,in Mumbai.
  5. 5. Various types of Derivatives
  6. 6. Advantages of usingDerivatives Leveraged Positions Lesser transaction costs Ease of creating positions Derivatives as Risk Management Products Derivatives as Trading Products
  7. 7. Types of Derivatives
  8. 8. Uses of Derivatives A derivative product can be used for , Risk management. Speculation. Risk mitigation. Risk taking.
  9. 9. Users of Derivatives Hedgers. Traders. Private clients. Arbitrageurs.
  10. 10. American and Europeanoptions The owner of an American option can excise it on or before the expiration date. The owner of a European style can excise it only on the expiration date.
  11. 11. Forwards The terms of the contract are agreed upon today ,and delivery and payment take place in the future, at what is called either the delivery date, the settlement or maturity date. Example-on a 19/02/2011 Jeetendra Ltd. enters into a forward contract with sushi Ltd for buying USD 1 crore at Rs.45 per USD on 5/03/2011.
  12. 12. Futures A futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed today price or strike with delivery and payment occurring at a specified future date, the delivery date. Three series of future contract are always available and have one-month, two month, and three month expiry cycles. Example-on a 3rd August 2011,jeetendra enters into a August 2011 Future contract for buying
  13. 13. Comparison between Forward and FutureForward FuturePrivate Contract between two parties Traded on an exchangeNot standardized Standardized ContractUsually one specified delivery date Range of delivery datesSettled at the end of contract Settled dailyDelivery or final cash settlement usually takes Contract is usually closed out prior to place maturitySome credit risk Virtually no credit risk
  14. 14. Swaps  Swaps are contractual agreements between two parties to exchange cash flows  Currency swaps  Interest rate swaps Interest rate swaps is the one in which one parties agrees to pay (to other counterparty) a fixed amount of money on specific dates. In currency swap, two different currencies are periodically exchanged.
  15. 15. Options Option is a derivatives instrument that gives the holder a right, without any obligation to perform. Option are basically contracts which give to the buyer a facility which is similar to buy or sell certain asset (underlying) but the buyer of an option has limited risk & unlimited profit. Options can be exchange traded derivatives or even over the counter derivatives.
  16. 16. Types of Options OPTION S CALL PUT
  17. 17. Call Option A call option is a contract that gives its owner the right but not the obligation, to buy something at a specified price on or before a specified date.
  18. 18. Put Option
  19. 19. Comparison between Call Option &Put OptionCall Option Put OptionOption which gives the holder right to Option which gives the holder right to BUY an assets but not an obligation to SELL an assets but not an buy. obligation to SELL.Call option will be exercise only when the Put option will be exercise only when exercise price is lower than the market the exercise price is Higher than price. the market price. Seller/writer is under obligation toSeller/writer is under obligation to sell the sell the underlying assets if the underlying assets if the buyer exercise buyer exercise his option to sell his option to buy the shares . the shares .
  20. 20. ITM, ATM, OTM Options In the money At the money Out of money
  21. 21. Intrinsic and Time value of theoption Intrinsic value is equal to the amount by which option is in the money. Time value is the difference between market price of the option and intrinsic value.
  22. 22. Summary of basic optionstrategies