The document discusses derivatives, which are financial instruments whose value is based on an underlying asset. It covers various types of derivatives like futures, forwards, swaps, and options. Futures are standardized contracts to buy or sell an asset at a future date, while forwards involve customized non-standardized contracts. Swaps involve exchanging cash flows between two parties. Options give the holder the right but not obligation to buy or sell the underlying asset.

1. DERIVATIVES
PRESENTED BY
JEETENDRA SINGH
ROLL NO (56)

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. 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. 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. Various types of Derivatives

6. Advantages of using
Derivatives
 Leveraged Positions
 Lesser transaction costs
 Ease of creating positions
 Derivatives as Risk Management Products
 Derivatives as Trading Products

7. Types of Derivatives

8. Uses of Derivatives
 A derivative product can be used for ,
 Risk management.
 Speculation.
 Risk mitigation.
 Risk taking.

9. Users of Derivatives
 Hedgers.
 Traders.
 Private clients.
 Arbitrageurs.

10. American and European
options
 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. 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. 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. Comparison between Forward
and Future
Forward Future
Private Contract between two parties Traded on an exchange
Not standardized Standardized Contract
Usually one specified delivery date Range of delivery dates
Settled at the end of contract Settled daily
Delivery or final cash settlement usually takes Contract is usually closed out prior to
place maturity
Some credit risk Virtually no credit risk

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. 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. Types of Options
OPTION
S
CALL PUT

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. Put Option

19. Comparison between Call Option &
Put Option
Call Option Put Option
Option 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 to
Seller/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. ITM, ATM, OTM Options
 In the money
 At the money
 Out of money

21. Intrinsic and Time value of the
option
 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. Summary of basic option
strategies