The market place where derivative contracts are traded is called derivative market.
They can be broadly classified as commodity derivatives and financial derivatives.
Commonly used derivatives are:
1. Forwards: agreement between two entities to buy or sell the underlying asset at a future date, at today's pre agreed price.
2. Futures: forwards contracts that are standardized and exchange traded.
3. Options: agreement in which buyer has option and right to buy/sell or not to buy/sell a certain agreed undeyling assets. two types of options are available;
a. Call option: give the buyer the right but not the obligation to buy a given quantity of underlying asset at a given price on or before future date.
b. Put Option: give the buyer the right but not the obligation to sell a given quantity of underlying asset at a given price on or before future date.
4. Warrants: longer dated options are called warrats having a maturity period of more than nine-months and usually taded in OTC market.
5. Swaps: they are private agreements between two parties to exchange cash flows in the future according to a per-arranged formula. Interest rate swaps and Curreny swaps are the commonly used swaps.
6. Baskets: options which are derived from a weighted average of a basket of assets. Equity index options are a form of basket options.
They can be broadly classified as commodity derivatives and financial derivatives.
Commonly used derivatives are:
1. Forwards: agreement between two entities to buy or sell the underlying asset at a future date, at today's pre agreed price.
2. Futures: forwards contracts that are standardized and exchange traded.
3. Options: agreement in which buyer has option and right to buy/sell or not to buy/sell a certain agreed undeyling assets. two types of options are available;
a. Call option: give the buyer the right but not the obligation to buy a given quantity of underlying asset at a given price on or before future date.
b. Put Option: give the buyer the right but not the obligation to sell a given quantity of underlying asset at a given price on or before future date.
4. Warrants: longer dated options are called warrats having a maturity period of more than nine-months and usually taded in OTC market.
5. Swaps: they are private agreements between two parties to exchange cash flows in the future according to a per-arranged formula. Interest rate swaps and Curreny swaps are the commonly used swaps.
6. Baskets: options which are derived from a weighted average of a basket of assets. Equity index options are a form of basket options.
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