Financial Derivatives

Financial Derivatives Various Types and Pricing of forrard Contracts ? Contents 1.Introduction.............................................................................................................................3 2.1 Futures...................................................................................................................................4 2.2 Options..................................................................................................................................8 2.3 Swaps...................................................................................................................................10 3. Pricing of Forward Contracts..............................................................................................13 4. References...........................................................................................................................16 1. Introduction A derivative is a financial instrument with a value dependent on the value of rough other, vestigial asset. The distinguishing feature of derivative instruments (or derivative contracts) is that they ar legal agreements betwixt two parties to trade an underlying asset at a date in the future.

This is in contrast to most investments, which ar issued by a borrower to an investor in order to raise money. Derivatives are mainly use to control risk. They can be used to reduce risk (a process known as hedging), or to increase risk (known as speculation) in order to enhance returns. Derivatives allow individuals and companies to hedge risks. This means that they bewilder it more likely that risks are borne by those best satisfactory to bear them. This makes it possible for individuals and companies to take on more gaga projects - with higher promised returns - and hence create more wealth by hedging those risks that can be hedged. There is also some evidence to suggest that futures (a form of derivative) trading... If you want to get a full essay, order it on our website: Ordercustompaper.com

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