DERIVATIVES

DERIVATIVES

What is a derivative?
A derivative is an instrument whose value depends on the values of another assets.

In recent years there has been the growth of derivative markets especially in the futures and options market. Before explaining what is futures and options we can also mention other examples of derivatives.

Examples of derivatives:

• Future Contracts
• Forward Contracts
• Options
• Swaps

Why are we using derivatives?

1. For hedging risks
2. For taking a position in the market for future direction
3. For making arbitrage profit
4. For changing the liability's nature

Another term related with derivative markets is the derivative asset or the contingent claim in different words. A derivative asset means that its payoff depends on the prices of other securities.