Speculating return and hedging risk with derivatives

Tian (Lori) Tang

Chapter 9 in Understanding Investment Risk and Return, 2025, pp 195-219 from Edward Elgar Publishing

Abstract: Investors and businesses often face the dual challenge of seeking return opportunities while managing risks effectively in financial markets. Speculating returns and hedging risk with derivatives are two fundamental strategies to address these dual objectives. This chapter delves into the intricate world of speculating returns and hedging risks with derivatives, offering a comprehensive exploration of various derivative instruments, including forward contracts, futures contracts, options contracts, and swap contracts. The chapter elucidates the strategic application of derivatives in speculative endeavors and risk management practices through detailed numerical examples and insightful case studies. The chapter also addresses regulatory considerations, best practices, and challenges in derivative trading, offering a comprehensive framework for investors and businesses to navigate derivative markets effectively.

Keywords: Derivatives; Speculating; Hedging; Risk management; Return; Regulatory (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035339716
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