Crafting a literature review on derivatives trading is a challenging task that requires meticulous

research, critical analysis, and synthesis of existing scholarly works. Delving into the complex realm
of financial derivatives demands a thorough understanding of various financial instruments, market
dynamics, regulatory frameworks, and risk management practices. Assembling a comprehensive
literature review involves scouring academic journals, books, research papers, and reputable online
sources to gather relevant insights, theories, empirical evidence, and perspectives.

One of the major difficulties encountered in writing a literature review on derivatives trading lies in
navigating through the vast and often divergent body of literature available on the subject. The
landscape of derivatives markets is constantly evolving, influenced by factors such as technological
advancements, global economic trends, and regulatory changes. Consequently, staying abreast of the
latest developments and synthesizing diverse viewpoints can be daunting.

Moreover, synthesizing the information gathered into a coherent narrative that effectively addresses
the research questions or objectives requires careful planning and organization. Striking the right
balance between providing a comprehensive overview of the existing literature and offering
insightful analysis and critique is essential for producing a high-quality literature review.

Given the complexities and challenges inherent in crafting a literature review on derivatives trading,
seeking expert assistance can be invaluable. ⇒ StudyHub.vip ⇔ offers professional writing services
tailored to your specific needs. Our team of experienced writers specializes in finance and
economics-related topics, ensuring that your literature review is well-researched, meticulously
written, and academically sound. With our assistance, you can confidently navigate the intricacies of
derivatives trading literature and produce a compelling review that adds value to your research.
It also provides products that protect you from a rise in the price of shares that you plan to purchase.
Types of derivative contracts One of the most popular type of derivative contract is the forward
contract, which has been described by Ross (1999) as abiding agreement between two parties for the
purchase or sale of specified amount of current stocks or bonds at a price that is pre-determined
while signing the agreement. It involves a comprehensive analysis and evaluation of existing
literature on a specific topic. The derivative of a function f(x) is, mathematically speaking, the slope
of the line tangent to f(x) at any point x. However, index futures may qualify as hedging
instruments. This means that the risk and the reward of owning a futures contract are symmetric.
Telephone No.: 022 43360000 Fax No.: 022 67132430 Correspondence Address Infinity IT Park,
Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Additionally,
it confirms that investors assign higher valuations to nonfinancial firms using derivative products,
and those valuations boost firms' incentives and ability to expand operations. Hopefully, you now
know the answer to the all-important question; what are OTC derivatives. Derivatives allow you to
spread risks between all participants instead of stock market trading. This could prove the best of all
possible worlds, as exchange trading will adequately meet business demand for risk management
without the systemic risk posed by OTC trading. For the term of the Share Installment you will
receive all the ordinary dividends paid by the underlying. Both are traded over the counter, while
futures and standardized options are traded on organized exchanges. In the final decades of the 20th
century, there was derivatives trading on currencies, bond and interest-rate futures and even options
on securities indexes. The trading volume of exchange derivatives in financial institutions had a
positive effect on the increase in ROA but an in- crease in trading volume in OTC derivatives had a
nega- tive effect on ROA. The final report of the National Commission on the Causes of the
Financial and Economic Crisis in the United States took a more nuanced view. If one party becomes
insolvent, the other party may have no recourse and could lose the value of its position. The last
version of the Fundamental Review of the Trading Book (FRTB) created much discussion within the
Industry. The new Market Risk Framework publication includes updates to liquidity horizon, risk
factor capitalization and model validation process. The sum of the fair values of the outstanding
contracts between the parties is known as gross market value. This mandatory deposit, which is
called margin money, covers an initial margin and an exposure margin. The impact of electronic
trading on the FX Market Ray McKenzie, Vice President, ICE The early years FX as part of a
commodity portfolio First electronic dealing platforms Electronic market making Phases I and II
Point and click vs algo traders The impact of the credit crisis on banks' FX trading Phase III 11. The
underlying security in the case of a Nifty Futures contract would be the 50-share Nifty index. Bond
futures oblige the contract holder to purchase a bond on a specified date at a predetermined price.
The big issue: whether U.S. regulators would require non-U.S. entities (including foreign branches of
American banks) that are engaged in swap trading with a U.S. entity to comply with U.S. rules.
Foreign regulators, particularly those in Europe, have strenuously objected to such an approach. The
book sets the direction of every chapter by laying down course outcomes at the beginning of each
chapter. We use the size of a firm (SIZE it ) and its debt level (LEV it ) as control variables. In 2005,
Timothy Geithner, then the president of the powerful Federal Reserve Bank of New York, assembled
representatives of the world's 14 largest banks to discuss his concern about substantial backlogs in
the documentation of credit derivatives. A futures contract is a standardized agreement to buy or sell
the underlying commodity or other asset at a specific price at a future date. Finally, derivatives are
usually leveraged instruments, and using leverage cuts both ways.
If this happens, any profits the investor realizes upon selling the stock become less valuable when
they are converted into euros. Daily settlement creates present values of the contracts. Since then,
OTC deriva- tives trading had actively gr own until the U.S. Financial Crisis, which resulted in
intensified regulation. Applying the chain rule to the basic functions yields. We cannot contain our
incessant urges to act because we are brought up in that manner or we can say that our mind
constantly takes decision. The impact of electronic trading on the FX Market Ray McKenzie, Vice
President, ICE The early years FX as part of a commodity portfolio First electronic dealing
platforms Electronic market making Phases I and II Point and click vs algo traders The impact of the
credit crisis on banks' FX trading Phase III 11. However, in groups or communities, individuality has
no existence. Such standardization reduces transaction costs and increases transaction volumes.
Investors might choose to invest in derivatives for some of the following reasons. These prices are
influenced by demand and supply factors, which can be volatile. Derivatives were used primarily to
hedge risk, but over time people used it to make gains out of the price movements of the underlying
assets. Trading derivatives on the stock market is better than buying the underlying asset since the
gains can be significantly exaggerated. It will contain data, accurate descriptions, and historical
information to factually describe events which have led to the development of the derivatives
markets. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. Banks
hold money but they are also engaged in activity that lead to creation of money. Results suggest that
before the crisis, the volume of over-the-counter trading, which tends to be less strictly regulated and
thus can be more flexibly applied, is positively associated with AR and ROA, while exchange trading
is not. By simple derivative we mean there is only one input. SlideshareData management
implications of the Fundamental Review of the Tradi. This could prove the best of all possible
worlds, as exchange trading will adequately meet business demand for risk management without the
systemic risk posed by OTC trading. Follow Ryan’s daily posts on Catalyst For Business. Take the
derivative of v' with respect to u again, we get. One hundred in the derivative market would fetch Rs.
60,000, which translates into a whopping return of over 33% on your investment of Rs. 1.8 lakh.
This is how a margin trader, who is a speculator, benefits from trading in the derivative markets. In
subsequent posts, we will expand our learning of these 3 words in conjunction with money. To
capture the overall impact, the analysis is divided into two steps. If interest rates fall so that the
variable rate on the original loan is now 5%, Company XYZ will have to pay Company QRS the 2
percentage-point difference on the loan. Please note that the 'look inside' feature is currently
displaying the content of Mastering Derivatives Markets Third Edition, this will be updated soon.
Thus, you are hedging your risks and transferring them to someone willing to take them. Simply put,
you are taking advantage of price differences in the two markets. A Wide Choice of Share
Installments Share installments are issued over a range of blue-chip South African shares. For
example, you may wish you buy stocks that are likely to rise in the future.
Derivatives are high-risk financial instruments whose value underlying securities. If an event occurs,
the seller is obligated to make the buyer whole. Credit derivatives Introduction What is credit risk.
Therefore, the growth of derivative types is better compared within the markets in which the
instruments are traded. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673;
MSE-1024, MCX-56285, NCDEX-1262. You can purchase a derivative derivative contract called an
'option' that incorporates all your above requirements by paying a small price. DEX it and DOTC it
are trading vol- umes of exchange derivatives and OTC derivatives, respectively, measured by gross
notional amount of derivatives divided by tot al assets. So, before investing in derivatives,
understand the risks involved and consult a financial advisor, if required. In earlier times whenever
the issuer of the money became weak due to any reason. The new Market Risk Framework
publication includes updates to liquidity horizon, risk factor capitalization and model validation
process. Trading derivatives on the stock market is better than buying the underlying asset since the
gains can be significantly exaggerated. We use this information to complete transactions, fulfill
orders, communicate with individuals placing orders or visiting the online store, and for related
purposes. For “Before the Crisis” sample of 2001Q4-2007Q2, the var- iables, CBI it, CPO it, CTO it,
and constant term have cor- relations with independent variables. However, an increase in futures
and credit derivatives is negatively associated with AR. Derivatives were used primarily to hedge
risk, but over time people used it to make gains out of the price movements of the underlying assets.
These differences in risk profile and market views distinguish hedgers from speculators. By simple
derivative we mean there is only one input. Orange County, in California, one of the wealthiest
counties in the United States, declared bankruptcy, due partly to losses on derivatives trading
involving leveraged repurchase agreements. Click here if you want to open a Trinity account that
relieves you from the hassles of operating different Demat, trading, and savings bank accounts. We
may plug in the cos(x) for y first then take the. Sometimes, the interest rate floor is also entered into
as a seller of the floor mainly to minimise the cost of a purchased interest rate cap. A speculator who
expects the euro to appreciate versus the dollar could profit by using a derivative that rises in value
with the euro. You may pay the balance of the share price (i.e. the loan amount) at any time before
the share installment matures, but this is not compulsory. CFD’s trade at the cash price of the
underlying share price. This suggests that derivative trading would improve the AR. Hence we see
bullion metals like Gold, Silver, and Platinum taking the form of money. Proofread for grammar,
spelling, and punctuation errors. Both can be bought, sold, or even combined to yield maximum
profit. The forward contracts are generally traded outside the exchanges. If you’re a master of any of
the aforementioned elements then Money will automatically follow.
Start by identifying the key databases, journals, and sources in your field. Rather, the tra- ding
volume in exchange derivatives appears to become significant. For example, one leg can be based on
6M LIBOR and the other leg can be based on 6M MIBOR. The initial upfront payment provides you
with exposure to the share over which the Share Installment is issued. In the case of index futures,
the change in the number of index points affects your contract, thus replicating the movement of a
stock price. The goal of this paper is to test these hypotheses. This financial learning is important for
every individual. Other Collection and Use of Information Application and System Logs. Puts give
the buyer the authority, but not the obligation to sell a given quantity of the underlying asset at a
given price on or before a given date. Traders use derivatives to access specific markets and trade
different assets. Let’s say, this non-refundable premium amount, in your case is INR 2000.
Derivatives exchanges in Brazil, China, India, South Korea and Russia have shown remarkable
growth and are now ranked among the busiest. With the possibility of the other party defaulting on
the payment or exercise of the promise, there needs to be an established due diligence system. Value-
at-Risk, 8. Credit Risk Management (Credit Derivatives), 9. If this amount is higher than Rs 3,000,
you book profits. The use of derivatives Derivatives (2011) stated that commonly investors use
derivatives for risk mitigation or hedging purposes. CFD’s trade at the cash price of the underlying
share price. Most of the risk factors have been revised in their buckets, risk weights and correlations,
distinguishing. Introduction Derivatives trading can function positively for financial institutions.
However, the views expressed are those of the Milken Institute. For example, an investor can decide
to purchase foreign currency when the exchange rate is low and then purchase local currency when
the exchange rate is high, and therefore, he or she will be able to make profit from the difference in
exchange rates. In contrast, the seller of an option receives the premium in return for risk exposure.
Some of the factors which are surging the cultivation of financial derivatives are. Trading and
Investing are the activities of an investor. Chance and Brooks (2008) stated that the other type of
derivatives are the exchange-traded derivatives that are typical transacted via derivative exchanges
or other forms of exchanges. The literature review on the derivates will cover on various aspects
relating to the financial instrument such as types of derivatives, types of derivative contracts, the use
of derivatives, and even the contribution of the derivative market to the economic function within a
country. Benchmarking in the OTC derivatives markets Penny Davenport, Manging Director, Markit
Document Exchange and Gavan Nolan, Vice President, Credit Research, Markit Group Financial
benchmarking for derivatives Liquidity benchmarking for derivatives Operational risk measurements
for derivatives Conclusion 9. CBI it is bilaterally netted cred it equivalent exposures, CPO it is the
credit equivalent exposures measuring potential future exposure to market prices volatility, CTO it is
the risk exposure to assets on total credit exposure, and CCA it is the total credit exposure to total
assets. They are the modern-day representation of traditional practices wherein individuals used to
place bets with one another, or farmers would agree to sell their crops in advance as insurance. The
use of derivatives to manage risk in trade and currency exchange flowered in the Renaissance, with
much of the activity taking place in Italy.
The last version of the Fundamental Review of the Trading Book (FRTB) created much discussion
within the Industry. The AR is the realized return net of the expected return. Profitability, Growth,
Valuation, Liquidity, and many more filters. The higher the risk, the greater the chance of high
returns. Example of me using AtOnce's AI review response generator to make customers happier.
Assuming the derivative is taken with respect to x. We encourage our users to be aware when they
leave our site and to read the privacy statements of each and every web site that collects Personal
Information. When using derivatives to speculate on the price movement of an underlying asset, the
investor does not need to have a holding or portfolio presence in the underlying asset. The use of
derivatives by banks and nonfinancial firms has an indirect impact on economic growth via a variety
of channels. For example, one leg can be based on 6M LIBOR and the other leg can be based on 6M
MIBOR. Margin Trading results in a high leverage factor in derivative trade because, with a small
deposit, one is able to keep a large outstanding position. Simply put, you are taking advantage of
price differences in the two markets. The use of derivatives to manage risk in trade and currency
exchange flowered in the Renaissance, with much of the activity taking place in Italy. Derivatives
today are based on a wide variety of transactions and have many more uses. Also, derivative trading
is used to hedge against price volatility in the currency markets by the importers and exporters. The
results suggest that exchange-traded derivatives trading volume has a significant negative ( ? )
correlation at the level of 1%. Stock index futures Stock index options Single stock options Equity
index swaps 14. This earning along with other sources of earnings clubbed together is known as the
income of that individual. Portfolio analysis selection; portfolio theory, return portfolio risk, effici.
Both are traded over the counter, while futures and standardized options are traded on organized
exchanges. The interest rate collar can be structured in such a way that the cost of the collar can be
zero at inception which is called as zero cost collars. We then obtain ROAs from da ily closing prices
of each financial institution. By the same token, it's possible that derivatives will migrate to
exchanges as the advantages become more apparent and regulation reduces the flexibility of OTC
operations. CFD History CFD’s were used by Institutions only but since 2000 CFD’s were used as
professional retail products. Get a feel for our content by dipping into our free investment courses, or
our all-in-one beginners guide to investing. But you can't tell the players without a scorecard. In fact,
they've been a bit too popular in the past. Ask yourself what you want to achieve with your literature
review and what gaps in knowledge you want to address. CBI it is bilaterally netted credit equiva-
lent exposures, CPO it is the credit equivalent exposures measuring potential future exposure to
market prices volatility, CTO it is the risk exposure to assets on total credit exposure, and CCA it is
the total credit exposure to total assets. Derivatives also can often be purchased on margin, which
means traders use borrowed funds to purchase them.
Supply factors, notably the rise of financial engineering built on a platform of cheap, rapid digital
computation and the Black-Scholes option-pricing formula, also played a major part. We may plug in
the cos(x) for y first then take the. Swaps, like forwards, are traded on the OTC market and are
subject to counterparty risk. Although they may be of great benefit to the participant, it is important
for them to be sold with caution as they require a large amount of experience in business success.
Happy reading! Discover prime books on investing and finance No boundaries, just your curiosity. A
speculator who expects the euro to appreciate versus the dollar could profit by using a derivative that
rises in value with the euro. The value of the derivative contract changed with the change in price of
the underlying cryptocurrency and thus, trading derivatives in an alternative way to get exposure to
the underlying cryptoasset or crypto currency. Such standardization reduces transaction costs and
increases transaction volumes. This provides a separate estimate of the resulting changes in real GDP
growth and includes further detail on investment, industrial production, employment, wages and
incomes, and consumption, in addition to many other variables. But you can't tell the players without
a scorecard. Assuming the derivative is taken with respect to x. They are mainly of four types vis- a-
vis futures, forwards Such types of Derivatives are used based on the type of risk exposure i.
Because the derivative has no intrinsic value (its value comes only from the underlying asset), it is
vulnerable to market sentiment and market risk. Each of CBI it, CPO it, CTO it and CCA it is
normalized by total assets. MCX Algo Trading Algo Trading Platforms Algo Trading Strategies.
Quantifi newsletter Insight spring 2016 Quantifi newsletter Insight spring 2016 Cost of Trading and
Clearing OTC Derivatives in the Wake of Margining and Oth. In 2005, Timothy Geithner, then the
president of the powerful Federal Reserve Bank of New York, assembled representatives of the
world's 14 largest banks to discuss his concern about substantial backlogs in the documentation of
credit derivatives. Ever since they seeped into the picture, these products have gained quite a
popularity and have reckoned for about two-thirds of total transactions in derivative products by
1990. A futures contract is a standardized agreement to buy or sell the underlying commodity or
other asset at a specific price at a future date. Assess the relevance of the content to your research
question and the quality of the research methodology used in the studies. We may plug in the cos(x)
for y first then take the. Equity derivatives Introduction Background Single stocks or equity indices.
Thus, it is strongly recommended that you understand some of the major ones and start applying
those in your trades to see the difference in your takeaway profits. An options contract is similar to a
futures contract in that it is an agreement between two parties to buy or sell an asset at a
predetermined future date for a specific price. SlideshareData management implications of the
Fundamental Review of the Tradi. The periods are classified into before (2001Q4-2007Q2) and after
(2007Q3- 2011Q3) the break of US Financial Crisis. Futures contracts are special types of forward
contracts that are traded on exchanges. Here, the bases mainly indicate underlying assets, interest
rate or indexes. The last version of the Fundamental Review of the Trading Book (FRTB) created
much discussion within the Industry. When market risks are relatively low, the volume of over-the-
counter (OTC) trading of a financial institution, which tends to be less strictly regulated and thus can
be more flexibly applied, is likely to have a pos- itive association with the return on assets (ROA), as
well as the enterprise value proxied by abnormal return (AR), before and after the US Fina ncial
Crisis.