CHAPTER I: INTRODUCTION TO DERIVATIVES
1. A derivative is a financial instrument (or an agreement between two people) that has a valued determined
by the price of something else.
2. Measuring market size:
Trading volume: the total number of financial clai
CHAPTER II: AN INTRODUCTION TO FORWARD OPTIONS
1. Forward Contract
- A forward contract sets today the terms at which you buy or sell an asset or commodity at a specific time
in the future.
- Payoff is the value at expiration.
- The term long is used to d
CHAP 5: FINANCIAL FORWARDS AND FUTURES
I. Alternative ways to buy a stock
1. Outright purchase
Pay money and receive stock
2. Fully leveraged
You borrow money to buy and receive
stock immediately, but later pay the
CHAP 4: INTRODUCTION TO RISK MANAGEMENT
I. Producers perspective
1. Hedging with a forward contract - short position
+ maintain a minimum level of profit.
+ no prospect for greater profit when price increases.
2. Buy a put option
+ guarantee a minimum amo