Derivatives markets robert l macdonald kellogs school

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
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The term ‘Derivative’ stands for a contract whose value is derived
from or is dependent upon the price of an underlying asset
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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
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2
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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.
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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
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Criticisms of derivative markets
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