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Derivatives

Derivatives

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Published by Pallav_Arora_2118

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Published by: Pallav_Arora_2118 on Apr 16, 2010
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03/07/2011

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INTRODUCTIONA Derivative is a financial instrument that derives its valuefrom an underlying asset. Derivative is a financial contract whoseprice/value is dependent upon price of one or more basic underlyingassets, these contracts are legally binding agreements made on tradingscreens of stock exchanges to buy or sell an asset in the future. The mostcommonly used derivatives contracts are forwards, futures and options,which we shall discuss in detail later.The main objective of the study is to analyze the derivativesmarket in India and to analyze the operations of futures and options.Analysis is to evaluate the profit/loss position of futures and optionscontracts. Derivative market is an innovation to cash market.Approximately its daily turnover reaches around four times the cashmarket segment.In cash market the profit/loss of the investor depends uponthe market price of the security bought or sold. Derivatives are mostlyused for hedging purpose. But the presence of speculators is equallyimportant for the liquidity of the market. In bullish market the call optionwriter incurs heavy losses so the investor is suggested to go for a calloption to hold, where as the put option holder suffers in a bullish market,so he is suggested to write a put option. In bearish market the call optionholder will incur more losses so the investor is suggested to go for a calloption to write, where as the put option writer will get more losses, so heis suggested to hold a put option.Nitin K Banka
 
OBJECTIVES.Study of derivative products using their payoff diagrams..To understand how these products are evaluated using mathematicalmodels..Study of Options Strategies to mitigate risk when markets are highlyuncertain and volatile..Study of important parameters which play an important role inPortfolio Design..To determine option premium for Reliance Industry using BlackSholes model and observe the changes in the implied volatility of thestock as the time to expiration approaches.Nitin K Banka
 
IMPORTANCE OF THE STUDYIn today
s time understanding of derivative products is very muchimportant because they give deep insight about F& O markets. It wouldbe essential for the perfect way of trading in F&O segment. An investorcan choose the right underlying or portfolio for investment which is riskfree or bearing very little risk. The study would explain the various waysto minimize the losses and maximize the profits. The study would assistin understanding the F&O segments in a sense that how futures andoptions valuations are carried out. The study would assist in knowing thedifferent factors that cause for the fluctuations in the F&O market.Nitin K Banka

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