Session 2 - Derivatives - 2014

In this class we reviewed some basic concepts about Derivatives.

- Derivatives are financial instruments whose price depend on the price of an underlying asset. Derivatives can be traded in Exchange-Traded markets (standardized, collateralized) or in OTC markets (customized, usually non-collateralized).

- Futures/Forwards. Agreement to buy or sell an asset in the future at a certain price. Futures are traded in Exchange-Traded markets while Forwards are traded in OTC markets. They represent an obligation. They give you to possibility to bet on underlying asset going up (long - buy the contract) or on the underlying asset going down (short - sell the contract). We saw that they are usually quoted with two prices (high price - low price).

- Options. The offer the right to buy (Call) or sell (Put) the underlying asset at a certain price in the future. We reviewed some of their characteristics and the difference between plain vanilla and exotic option, American and European option...

- Finally, we saw some basic characteristics of IRS, CCS, CDS.

You can find the presentation here.

Maybe, you want to review what is a long position and a short position.

There was a question during the class regarding the difference between delivering the underlying asset on a specified date or on a range of dates. Have a look at the delivery period of this contract. The seller has a whole month to deliver the underlying asset.