Introduction Chapter Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.1 Introduction Chapter 1
2 The nature of derivatives a derivative is an instrument whose value depends on the values of other more basic underlying variables Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.2 The Nature of Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables
3 Examples of Derivatives · Forward contracts Futures Contracts Swaps Options Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.3 Examples of Derivatives • Forward Contracts • Futures Contracts • Swaps • Options
Derivatives markets Exchange traded Traditionally exchanges have used the open outcry system, but increasingly they are switching o electronIc trading Contracts are standard there is virtually no credit risk Over-the-counter OTC) A computer-and telephone-linked network of dealers at financial institutions corporations and fund managers Contracts can be non-standard and there is some small amount of credit risk Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.4 Derivatives Markets • Exchange traded – Traditionally exchanges have used the openoutcry system, but increasingly they are switching to electronic trading – Contracts are standard there is virtually no credit risk • Over-the-counter (OTC) – A computer- and telephone-linked network of dealers at financial institutions, corporations, and fund managers – Contracts can be non-standard and there is some small amount of credit risk
5 Ways Derivatives are Used To hedge risks To speculate(take a view on the future direction of the market) To lock in an arbitrage profit To change the nature of a liability To change the nature of an investment without incurring the costs of selling one portfolio and buying another Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 1.5 Ways Derivatives are Used • To hedge risks • To speculate (take a view on the future direction of the market) • To lock in an arbitrage profit • To change the nature of a liability • To change the nature of an investment without incurring the costs of selling one portfolio and buying another