FINA 385 Lecture Notes - Lecture 11: Forward Contract, Futures Contract, University Of Florida
Document Summary
Derivatives: in this section we will study derivatives. Derivative is a contract written on an asset which can be another security or commodity: there are many types of derivatives. We will study futures contracts, forward contracts, and options: derivatives are traded on exchanges and in over the counter (otc) markets, the bene t of an exchange is that it facilitates meeting of people who want to trade. Hedgers use derivatives to reduce the risk they face from potential future movements in a market variable. Speculators use derivatives to bet on the future direction of a market variable. Example: a call option written on a stock. Arbitrageurs take o setting positions in two or more instruments to lock in a pro t. The price of an asset to be sold in the future is called futures price. It is di erent from a spot price which a current price on an asset.