Derivatives Markets Robert L Macdonald Kellogs school of managementAddison

Derivatives markets robert l macdonald kellogs school

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Derivatives Markets- Robert L Macdonald Kellogs school of management—Addison Wesley Publishers 3. Options, Futures and Other Derivatives —John Hull—7 th edition Pearson Education / Prentice Hall As the title indicates, derivatives are basically a risk management tool, uncertainty situations optimizer, etc and profit maximization will come only at the end that too only after the user has mastered the art and science of derivatives trading . The risk of playing in the derivatives market with half knowledge is very dangerous and there are many case studies to prove this point in foreign exchange market, commodity market, etc, etc. Unit Session Topics Session 1 Introduction The term ‘Derivative’ stands for a contract whose value is derived from or is dependent upon the price of an underlying asset The underlying asset could be a financial asset such as currency, stocks, and market index, an interest bearing security or a physical commodity like gold, coffee etc. . Today, around the world, derivative contracts are traded on electricity, weather, temperature and even volatility 1 2 Types of derivatives Forwards - Currency, Interest rate, Commodity , Forward Rate, etc Futures – Equity,Index, Interest rate, Commodity Options - Equity, Index Swaps - Interest rate , Currency Forward commitments –underlying assumption in any derivative. Contingent claims- A contingent claim is another term for a derivative with a payout that is dependent on the realization of some uncertain future event. Common types of contingent claim derivatives include options and modified versions of swaps, forward contracts and futures contracts The purposes of derivative markets - Discovery of prices, transfer of risks and higher trading volumes, controlled environment, catalyst to new entrepreneurial activity Criticisms of derivative markets
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