Derivatives And Risk Management

Question 1

What are the different types of derivatives and how to they differ?

Answer 1

Forward - an agreement to trade in the future
Futures - Similar to forward but highly standardised and exchange traded (go through a company like the ASX)
Swap - A package of forwards where you swap one payment for another
Option - The right but not the obligation to buy/sell

Question 2

How do you calculate futures?

Answer 2

In a square, Now & Then * Futures & Physical
Step 1 - Open futures position, sell futures, Namountcurrent price=
Step 2 - Close out futures, buy futures, Namountcurrent price=, futures profit=
Step 3 - Sell in physical market, amount*sale price=
Overall, Step 3 + Step 2 profit/loss

Question 3

What is an option?

Answer 3

An option is the right (but not the obligation) to force a transaction to occur at some time in the future on terms and conditions agreed upon now

Question 4

How do you calculate options?

Answer 4

Time 0 - write put, write call, buy share
The call is exercised when the share > exercise [right to buy an asset]
The put is exercised when share