Derivatives

A security whose value depends upon the values of other basic underlying variable is derivative

Call option gives the right to buy the securities.

When the strike price is equal to the spot price on the maturity date, it is called at-the-money.

An option is the right, but not the obligation to buy or sell something on a specified date at a specified price.

Put option gives right to sell the securities.

VaR means Value at risk.

In derivatives, the purpose of VaR is to minimize the risk.

In derivatives market, OTC means Over The Counter trading.

The first Interest Rate Swap was occured between IBM and World Bank in the year 1981.

G-30 means Group of 30.

In derivatives, swaps means exchange.

When the strike price is lower than the spot rate it is called in-the-money.

In derivatives market, CaR means Cashflow at Risk.

By taking the analysis of the past scenarios the firm may take decisions, that is known as Scenario analysis in derivatives

Historical method uses the past data. Based on the past data the investor analyses the firm.

According to Basel norms, Basel 2 committee is having 3 pillars.

In derivatives, there are 2 types of risk reporting processes.

In derivatives market, VaR is calculated for short term.

Futures contract is an agreement between two parties to exchange a commodity for certain consideration after a specified period.

To cover the financing loss there are 3 methods.

London Interbank Offer Rate is the interest rate offered by London banks on deposits made by other banks.

In derivatives, both the delta and historical methods differs when the asset returns are eually distributed.

Cashflow at risk shows the liquidity position of the business.

It decribes the options of pricing the portfolio.

In derivatives market, FRA is Forward Rate Agreement.