BU283 Chapter Notes - Chapter 19: Arbitrage, Chicago Mercantile Exchange, Electronic Trading Platform
Document Summary
Options: a contract that, in exchange for the option price, gives the option buyer the choice to buy (or sell) an underlying asset at the exercise price from (or to) the option seller before a specified date. Derivative contracts: financial contract whose value depends on, or is derived" from, an underlying asset or security. Risk price: the risk that the price (or value) of an asset, commodity, security, or portfolio will move adversely in the future. Action that reduces price risk is called a hedge; action that increases price risk is called speculating. Speculators accept price risk in the hope of making a profit. Derivatives markets are a place where hedgers pass their price risk off to speculators. Forward contracts: modification of a spot contract where the price, quantity, and quality of the good to be exchanged are agreed on at initiation, but the exchange of the goods for money occurs at a later date.
