Derivative Markets: An Introduction

Beskrivelse

Forwards, futures, swaps, options, hybrids (such as swaptions and options on futures) and a category “other” (credit derivatives, weather derivatives, etc) make up the derivative markets. The word is drawn from “derive” and means that the derivative instrument cannot exist on its own. It is closely related to “something” and this something is usually a spot (or “cash”) market instrument called the underlying instrument. A spot deal is a deal done now (T+0 days) for settlement now. “Now” means the earliest date dictated by market convention. For example, in the money market a Treasury bill sale transacted on T+0 can be settled today (T+0) or tomorrow (T+1). In the bond market deals are done on T+0 and usually settled on T+3. In spot deals and derivative deals the price is agreed on T+0, but settlement dates are different: spot deals are settled “now” and derivative in the future (eg. T+180). Derivatives are used for hedging, speculation and investment.

Innhold

1. Context
   1. Learning outcomes
   2. Introduction
   3. The financial system in brief
   4. Ultimate lenders and borrowers
   5. Financial intermediaries
   6. Financial instruments
   7. Spot financial markets
   8. Interest rates
   9. The derivative markets
   10. Summary
   11. Bibliography
2. Derivative markets: forwards
   1. Learning outcomes
   2. Introduction
   3. Spot market: defintion
   4. Forward market: defintion
   5. An example
   6. Forward markets
   7. Forwards in the debt markets
   8. Forwards in the share / equity market
   9. Forwards in the foreign exchange market
   10. Forwards in the commodities market
   11. Forwards on derivatives
   12. Organisational structure of forward markets
   13. Summary
   14. Bibliography
3. Derivative markets: futures
   1. Learning outcomes
   2. Introduction
   3. Futures defined
   4. An example
   5. Futures trading price versus spot price
   6. Types of futures contracts
   7. Organisational structure of futures markets
   8. Clearing house
   9. Margining and marking to market
   10. Open interest
   11. Cash settlement versus physical settlement
   12. Payoff with futures (risk profile)
   13. Pricing of futures (fair value versus trading price)
   14. Fair value pricing of specific futures
   15. Basis
   16. Participants in the futures market
   17. Hedging with futures
   18. Basis trading
   19. Spread trading
   20. Futures market contracts
   21. Risk management by a futures exchange
   22. Economic significance of futures markets
   23. Summary
   24. Bibliography
4. Derivative markets: swaps
   1. Learning outcomes
   2. Introduction
   3. Interest rate swaps
   4. Currency swaps
   5. Equity / share swaps
   6. Commodity swaps
   7. Listed swaps
   8. Organisational structure of swap market
   9. Summary
   10. Bibliography
5. Derivative markets: options
   1. Learning outcomes
   2. Introduction
   3. The basics of options
   4. Intrinsic value and time value
   5. Option valuation/pricing
   6. Organisational structure of option markets
   7. Options on derivatives: futures
   8. Options on derivatives: swaps
   9. Options on debt market instruments
   10. Options on equity / share market instruments
   11. Options on foreign exchange
   12. Options on commodities
   13. Option strategies
   14. Exotic options
   15. Summary
   16. Bibliography
6. Other derivatives
   1. Learning outcomes
   2. Introduction
   3. Securitisation
   4. Credit derivatives
   5. Weather derivatives
   6. Carbon credit derivatives
   7. Freight (or shipping) derivatives
   8. Energy derivatives
   9. Summary
   10. Bibliography
7. Endnotes