BFC5915 Study Guide - Final Guide: Credit Default Swap, Barings Bank, Risk Neutral
Document Summary
Derivative: is a financial instrument that derives it value from the price of an underlying instrument. Option: is a contract between two parties providing the buying the right, but not the obligation, to buy/sell a quantity of some underlying asset at a particular price on or before a specified date. Futures: a futures contract provides the buyer with a specified quantity and quality of the underlying asset at a future date for a specified price. Retail market makes up the largest part of option use (individuals, private business , financial institutions) Used for risk management (hedging and speculation, altering risk exposure) Used for operational advantages (cheaper transaction costs, liquidity, short selling opportunities, leverage opportunities) Used for hedging and speculation on market trends. Index options are considered to be european options (only be exercised at maturity date) Advantages over equity options: less transaction costs, leveraged profit, protection of a share portfolio. Expiry date is 3rd thursday of the month.
