Derivative securities Quanwei cao Department of Finance TSinghua University
Charles Cao 1 Derivative Securities Quanwei Cao Department of Finance Tsinghua University
1. Introduction Summary Introduction to derivatives Futures Contracts Underlying Assets Forward contracts Types of Traders Charles cao
Charles Cao 2 1. Introduction ◼ Summary ◼ Introduction to Derivatives ◼ Futures Contracts ◼ Underlying Assets ◼ Forward Contracts ◼ Types of Traders
What is a derivative? Futures options and swaps aa derivative is a financial contract which has a value determined by the price of something else Charles cao
Charles Cao 3 What is a Derivative? ◼ Futures, options and swaps ◼ A derivative is a financial contract which has a value determined by the price of something else
Example Your family grows corn Your friend 's family buys corn to mil into cornmeal a bushel of corn is not a derivative a It is a commodity Charles cao
Charles Cao 4 Example ◼ Your family grows corn ◼ Your friend’s family buys corn to mill into cornmeal ◼ A bushel of corn is not a derivative ◼ It is a commodity
Example You enter into an agreement with your friend that says: If the price of a bushel of corn in one year is greater than $3, you will pay your friend $1 If the price of corn is less than $3, the friend will pay you $1 This is a derivative Charles cao 5
Charles Cao 5 Example ◼ You enter into an agreement with your friend that says: ◼ If the price of a bushel of corn in one year is greater than $3, you will pay your friend $1 ◼ If the price of corn is less than $3, the friend will pay you $1 ◼ This is a derivative