Lecture 1 Flashcards
Derivative Definition
An agreement between two parties which has a value determined by the price of something else
Types of derivatives
Swaps, options, futures
Steps involved
1 Striking a deal, 2 Clearing 3 Settling 4 Maintaining records
Open Interest
Total number of contracts that are open
Trading volume
The number of financial claims that change hands
Market Value
The sum of the market value of the claims that could be traded
Notional Value
The scale of a position, referring to the underlying asset
Role of financial markets
make risk sharing more efficient
Uses of derivatives
Risk management, speculation, reduced transaction costs, regulatory arbitrage
Three different perspectives
End users (corporations, investors) Intermediaries (Market makers, traders) Economic obvservers (regulators, researchers)
