FIN5DER Chapter Notes -Chicago Board Options Exchange, Forward Contract, Forward Price
Document Summary
A derivative is a financial instrument whose value depends upon the value of another asset. It derives its value, thus the term derivatives. Where are derivatives traded: exchanged traded markets, over-the-counter (otc) markets. Markets where transactions take based on computer trading so place normally on telephone parties don"t know each other trading & parties know each other. Have non-standard terms and conditions set by the market conditions; can be set by the trading parties. Some credit risk as counterparties counterparties are required to set may not be able to fulfill conditions up margin account with the exchange. Types of derivatives: a derivative is broadly divided into 2 categories: a forward commitment: two parties agree to engage in a transaction at a later date at a price agreed upon at the start of the contract. Forward contract, futures contract, swap: a contingent claim: it is a claim made by one of the parties which depends upon a specific event.
