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Derivativeppt 170128122925
Derivativeppt 170128122925
HARSH ADHIYA 01
KESHAV AGARWAL 02
NEIL GALA 09
ABHISHEK OZA 20
YATIN PRABHU 25
DHAVAL SOLANKI 29
The term “derivatives” is used to refer to financial instruments
which derive their value from some underlying assets.
The underlying assets could be equities (shares), debt (bonds,
T-bills, and notes), currencies, and even indices of these
various assets, such as the Nifty 50 Index.
Derivatives contracts are bought and sold by a large number
of individuals, institutions and other’s for a variety of
purposes.
When the price of the underlying changes, the value of the
derivative also changes.
E.g. The value of the gold futures contract is derived from the
value of underlying asset i.e. gold.
The Bombay Cotton Trade Association started
future trading in 1875.
In 1952 the Govt. banned cash settlement
and option trading.
In 1995 a prohibition of trading options was
lifted.
In 1999 the Securities Contract (Regulation)
Act of 1956 was amended and derivatives
could be declared “securities”.
NSE started trade in future & option by 2005.
A forward contract or simply a forward is a contract
between two parties to buy or sell an asset at a certain
future date for a certain price that is pre-decided on the
date of the contract.
The future date is referred to as expiry date and the
pre-decided price is referred to as Forward Price.
It is the customized contract, in the sense that the term
of the contract are agreed upon by the individual
parties.
Hence it is traded on Over The Counter (OTC).
Default risk, Credit risk & Counter-party risk involved in
this type of contract.
Like a forward contract, a futures contract is an agreement
between two parties in which the buyer agrees to buy an
underlying asset from the seller, at a future date at a price
that is agreed upon today.
Unlike a forward contract, a futures contract is not a private
transaction but gets traded on a recognized stock exchange.
In addition, a futures contract is standardized by the
exchange.
Both buyer and seller of the futures contracts are protected
against the counter party risk by an entity called the Clearing
Corporation.
Like forwards and futures, options are derivative
instruments that provide the opportunity to buy or
sell an underlying asset on a future date.
Options can be divided into two different
categories depending upon the primary exercise
styles associated with options. These categories
are American option & European option.
There are two types of options—call options and
put options—which are explained below.
Call option gives the buyer the right but not the obligation to
buy a given quantity of the underlying assets, at a given price
on or before a given future date.