Scribd Logo
Upload

Welcome to Scribd!

  • 145 views

    Investor - Derivatives

    Uploaded by

    Saurabh Sharma
    This document provides an overview of derivatives markets, including: the meaning and definition of derivatives; the economic benefits of derivatives; the history of derivatives trading; the main types of financial derivatives such as forwards, futures, options, warrants, and swaps; the key features of forwards, futures, and options contracts; the different participants in derivatives markets like hedgers, speculators, and arbitrageurs; and information on derivatives trading in India.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Investor - Derivatives

    Uploaded by

    Saurabh Sharma
    145 views24 pages
    This document provides an overview of derivatives markets, including: the meaning and definition of derivatives; the economic benefits of derivatives; the history of derivatives trading; the main types of financial derivatives such as forwards, futures, options, warrants, and swaps; the key features of forwards, futures, and options contracts; the different participants in derivatives markets like hedgers, speculators, and arbitrageurs; and information on derivatives trading in India.

    Original Description:

    derivatives market

    Original Title

    Investor- derivatives

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document provides an overview of derivatives markets, including: the meaning and definition of derivatives; the economic benefits of derivatives; the history of derivatives trading; the main types of financial derivatives such as forwards, futures, options, warrants, and swaps; the key features of forwards, futures, and options contracts; the different participants in derivatives markets like hedgers, speculators, and arbitrageurs; and information on derivatives trading in India.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    145 views24 pages

    Investor - Derivatives

    Uploaded by

    Saurabh Sharma
    This document provides an overview of derivatives markets, including: the meaning and definition of derivatives; the economic benefits of derivatives; the history of derivatives trading; the main types of financial derivatives such as forwards, futures, options, warrants, and swaps; the key features of forwards, futures, and options contracts; the different participants in derivatives markets like hedgers, speculators, and arbitrageurs; and information on derivatives trading in India.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 24

    The Derivatives Market Sessions 13 and 14

    Objectives
    To understand:
    1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Meaning of Derivatives Economic benefits of Derivatives History of Derivatives Trading Need for financial derivatives Types of financial derivatives Distinctive features of derivatives market Exchange traded v/s OTC derivatives market Traders in derivatives market Forwards and Futures Options Derivatives trading in India

    Derivative Defined
    Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index or reference rate) in a contractual manner The underlying asset can be equity, forex, commodity or any other asset

    Types of Financial Derivatives


    Forwards Futures Options Warrants Swaps Swaptions

    Products
    Futures and Forwards
    an agreement between two entities, where settlement takes place on a specified date in the future as todays pre-agreed price

    Options
    Call - gives the buyer the right but not the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date Put gives the buyer the right but not the obligation to sell the a given quantity of the underlying asset at a given price on or before a given date

    Forward contracts : Features


    Bilateral Custom designed settled by delivery help in hedging foreign exchange rate fluctuation risks. non tradable can be reversed only with the same counter party possibility of default

    Futures Contracts : Features


    exchange traded forward contracts standardised specification Transparent Liquid marked to market daily Flexible can be reversed with any member no credit risk regulated

    Forward Contracts vs Futures Contracts


    FORWARDS FUTURES

    Private contract between 2 parties


    Non-standard contract Usually 1 specified delivery date

    Exchange traded
    Standard contract Range of delivery dates

    Delivery or final cash settlement usually occurs


    Some credit risk

    Contract usually closed out prior to maturity


    Virtually no credit risk

    Traders in Derivatives market


    - Hedger- enters the market to reduce risk

    - Speculator enters the market to make profit


    - Arbitrageur enters the market to make profit from relative mispricing in two markets.

    Need for futures market


    -Allows hedging against price changes - Helps in price discovery - helps in optimal allocation of resources - speedier and less costly

    Products
    Futures
    an agreement between two entities, where settlement takes place on a specified date in the future as todays pre-agreed price

    Options
    Call - gives the buyer the right but not the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date Put gives the buyer the right but not the obligation to sell the a given quantity of the underlying asset at a given price on or before a given date

    11

    Types of Options
    Call option right to buy Put option right to sell European -style options exercised only on the maturity date American- style options exercised any time before and on the expiry date

    Features of Options
    - Fixed maturity date - Exercise price - Option writer : seller of an option - Option premium - Value of option i.e. premium depends on : exercise price, time of expiration, price of the asset, variance of returns of the asset, risk free rate and dividends expected

    Moneyness
    http://www.nseindia.com/live_market/dynaContent/live_watch/fxTracker/optChainDataByExpDates.jsp

    Moneyness
    Call Option Put Option
    Spot price of Spot price of underlying asset underlying asset In-the-money > Strike price < Strike price (S>X) (S<X) Spot price of Spot price of underlying underlying At-the-money* asset=Strike asset=strike price. price. Spot price of Spot price of * Out-of-theunderlying asset underlying asset money < Strike price > Strike price (S<X) (S>X).

    When market price is very near to the strike price, option is called near-the-money option

    Pay-off Profile of Call Stock Options

    Pay-off Profile of Put Options

    Comparing Futures and Options


    Futures
    Obligation to buy/sell Symmetric risk profile for both buyer & seller Price of the underlying asset is the major influencer No costs to enter into a futures contract Less regulatory complexities

    Options
    Right to buy/sell Asymmetric risk profile for both seller and buyer Prices exposed to a number of dimensions Premium to be paid More regulatory complexities

    OTC derivatives
    via telephone, fax and electronic means more flexible than exchange traded absence of regulatory authority create turbulence in financial system In India, illegal

    Economic benefits of Derivatives


    - Reduce risk - Enhance liquidity - Lower transactions costs - Enhance price discovery process - Hedge stock portfolio - Provide information

    Need for financial derivatives


    Shift three types of price risk
    - Market risk - Interest rate risk - Exchange rate risk

    History of Derivatives Trading


    In ancient Greece and Rome forward delivery contracts existed. Chicago Board of Trade (CBOT), first formal commodities exchange set up in 1848 Emergence of formal futures commodities trading in 1860s Chicago Mercantile Exchange (CME) formed in 1919 Stock index futures and options emerged in 1982 First account of options published in Aristotle Polictics in332 BC First call and put options in 1872 Chicago Board Options Exchange (CBOE) set up on April 26, 1973

    Derivatives Trading in India


    At present,179 scrips are traded in the derivatives segment - Sectoral indices permitted for derivatives trading in December 2002 - Trading in - - Stock Index Options - Individual Stock options - Stock Index Futures - Stock Futures

    Derivative markets in India


    Milestone Index Futures Trading Index Options Trading Individual stock options Individual stock futures Date June 2000 June 2001 July 2001 November 2001

    24

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy