Lesson9 - Lesson9:UnderstandingDerivatives In this lesson...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Lesson 9: Understanding Derivatives In this lesson we examine a particular set of financial contracts known as derivatives – these include futures, options and swaps. Suggested reading: RSU chapter 9
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
What are they? They are called derivatives because they are financial contracts that derive their value from some other underlying asset (contract); so their value is derived from that underlying asset. A future is a contractual agreement specifying the delivery (purchase and sale) of a specific underlying asset (commodity or security) at some future date (or period) at a currently agreed upon price . An option is a contractual agreement specifying the optional purchase or sale of a specific underlying asset (commodity or security) at any time up to some future date at a currently agreed upon price . A swap is a contractual agreement in which the parties agree on specified terms to exchange underlying contracts – for example a fixed interest contract for a variable interest contract.
Background image of page 2
Futures What? Agricultural commodities (pork bellies, wheat), treasury bonds, eurodollar time deposits, stocks and stock indexes, foreign currencies, … Where? Chicago board of Trade (CBT), Chicago Mercantile Exchange and others. When? C ommodity futures date back more than 150 years, financial futures about 30 years. The volume in trading financial futures has grown rapidly. How? T hey are a subset of forward contracts – they are standardized agreements to buy or sell a particular asset at a future date at a currently agreed price. Futures involve both buyer and seller in
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/23/2011 for the course FIN 6320 taught by Professor Lewin during the Summer '11 term at University of Texas at Dallas, Richardson.

Page1 / 9

Lesson9 - Lesson9:UnderstandingDerivatives In this lesson...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online