BUSI 3405U Lecture Notes - Lecture 10: Credit Risk, Brokerage Firm, Futures Contract
Document Summary
Buy them back at a lower price (week 8 margin accounts etc) For simplicity, we do not consider transaction costs, short selling costs, and other costs. Security"s payoff is determined by or is contingent on that of other securities. Contract that obligates two parties to exchange a predetermined quantity of something at a fixed price sometime in the future. Contract that gives the buyer the right but not the obligation to buy and sell a fixed quantity at a predetermined price sometime in the future. Seller is obliged to fulfill the contract if called on. Call options on stocks are the oldest traded contract. Over the counter (otc) largely between banks and big institutions: forwards, cds, interest rate swaps, cdos. Exchange traded more retail oriented: future and option. Derivatives by themselves are not risky it depends whether you have the underlying security. Trader starts to lose and covers up losses by more trades.
