Derivative Securities

Gian Maria Tomat ()
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Gian Maria Tomat: Bank of Italy

Chapter Chapter 9 in Financial Markets Efficiency and Economic Behaviour, 2023, pp 133-143 from Palgrave Macmillan

Abstract: Abstract A derivative is a security whose price is a function of the value of an underlying asset. Derivative securities provide insurance from different types of risk. Futures are similar to forward contracts and settle payments for delivery at future dates. The assumption of no arbitrage in futures and forward markets implies, that the corresponding prices have a random walk property. Futures and forward contracts protect investors from price fluctuations. Options are contracts that give the right to buy or sell an activity for a defined price at some date in the future and insure from asset price volatility. Swaps are contracts that regulate the exchange between different flows of payment. Interest rate swaps trade flows with different maturity, in order to diversify interest rate risk. Exchange rate swaps trade flows in different currencies, to hedge against exchange rate volatility.

Date: 2023
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DOI: 10.1007/978-3-031-36836-3_9

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