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Financial derivatives are financial instruments that derive their value from underlying assets such as stocks, bonds, commodities and currencies. Financial market for trading derivatives is known as derivatives market. There are four major types of financial derivatives including futures, options, forwards and swaps. Hedgers and speculators use derivative products to take advantage of the market fluctuations. Derivatives are used primarily for one of two purposes, namely, mitigating risk (hedging) or assuming risk in expectation of commensurate reward (speculation). Investors choose financial derivatives to deal with market volatility, take advantage of arbitrage opportunities, and to access different markets and assets. The type of derivative contract wherein the buyer and seller enter into an agreement to fix the quantity and price of an asset is called a future contract. The objective of this book is to give a general view of the different areas of financial derivatives including markets and their applications. Those in search of information to further their knowledge will be greatly assisted by this book.
