Showing posts from January, 2018

Derivatives:Forwards and Futures

Before understanding what is derivative, let’s learn what is underlying asset. Underlying asset: Underlying asset can be real asset such as commodities, gold etc or financial assets such as index, interest rates etc.

Follow us on LinkedIn : Actuary Sense Follow me on LinkedIn: Kamal Sardana
Derivatives: ·These are financial instruments who value depend upon or is derived from some underlying asset. ·A derivative does not have its own physical existence, it emerges out of contract between the buyer and seller of derivative instrument. ·Its value depends upon the value of underlying asset. Hence returns from derivative instruments are linked to returns from underlying assets. ·The most common underlying assets are stocks, bonds, commodities, market indices and currencies. ·Derivatives are mainly used to control risks. They can be used to reduce risks (a process known as hedging) or to increase risks in order to enhance returns (speculation)
Classification of Derivatives: ·Broadly we can divide it…