AFM121 Chapter Notes - Chapter 10: Credit Risk, Interest Rate Risk, Interest Rate
6 Mar 2017
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Derivative derive their value from the price of another underlying asset, such as. Chapter 10: derivatives a stock, stock or bond index, commodity price, etc. Most fall into one of two categories: Options: contracts that provide the buyer the right, but not the obligation, to buy or sell a certain quantity of some underlying asset at a predetermined price for a predetermined period of time. The seller of the contract is obligated to buy or sell if called upon to do so. Forwards: contracts that obligate both parties to exchange a certain quantity of an underlying asset at a specified future point in time at a predetermined price. Derivatives trade on exchanges in in the otc market. Used by individual investors, institutional investors, corporations and businesses, and derivative dealers. Contracts between a buyer and seller, based on an underlying security. Not issued by a company as a form of capital.
