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DMDM123

DMDM123

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Published by telikaramu
national stock exchange financial certification process
national stock exchange financial certification process

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Published by: telikaramu on Sep 11, 2013
Copyright:Attribution Non-commercial

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04/15/2014

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1
CONTENTS
CHAPTER 1: INTRODUCTION TO DERIVATIVES.......................................................6
1.1Types of Derivative Contracts.............................................................................6
1.1.1
Forwards Contracts................................................................................6
1.1.2
Futures Contracts..................................................................................6
1.1.3
Options Contracts..................................................................................6
1.1.4
Swaps..................................................................................................71.2History of Financial Derivatives Markets...............................................................81.3Participants in a Derivative Market.....................................................................101.4Economic Function of The Derivative Market........................................................10
CHAPTER 2: UNDERSTANDING INTEREST RATES AND STOCK INDICES................12
2.1Understanding Interest rates.............................................................................122.2Understanding the Stock Index..........................................................................132.3Economic Significance of Index Movements.........................................................142.4Index Construction Issues.................................................................................142.5Desirable Attributes of an Index.........................................................................15
2.5.1
Impact cost..........................................................................................162.6Applications of Index........................................................................................17
2.6.1
Index derivatives..................................................................................17
CHAPTER 3: FUTURES CONTRACTS, MECHANISM AND PRICING...........................18
3.1Forward Contracts............................................................................................183.2Limitations of forward markets..........................................................................193.3Introduction to Futures.....................................................................................193.4Distinction between Futures and Forwards Contracts............................................193.5Futures Terminology.........................................................................................203.6Trading Underlying vs. Trading Single Stock Futures.............................................213.7Futures Payoffs................................................................................................21
3.7.1
Payoff for buyer of futures: Long futures..................................................21
3.7.2
Payoff for seller of futures: Short futures.................................................223.8 Pricing Futures.................................................................................................23
3.8.1
Pricing equity index futures....................................................................23

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