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Derivatives
Member rating: No Rating | Words: 9665 | Submitted: Sun Jan 27 2008
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CHAPTER - 1 * INTRODUCTION TO DERIVATIVES * DEFINITION OF DERIVATIVES CHAPTER 1 INTRODUCTION : Derivatives are one of the most complex instruments. The word derivative comes from the word 'to derive'. It indicates that it has no independent value. A derivative is a contract whose value is derived from the value of another asset, known as the underlying asset, which could be a share, a stock market index, an interest rate, a commodity, or a currency. The underlying is the identification tag for a derivative contract. When the price of the underlying changes, the value of the derivative also changes. Without an underlying asset, derivatives do not have any meaning. For example, the value of a gold futures contract derives from the value of the underlying asset i.e., gold. The prices in the derivatives market are driven by the spot or cash market price of the underlying asset, which is gold...
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