Basics of Financial Derivatives

Frank J. Fabozzi and Francesco A. Fabozzi

Chapter 6 in Fundamentals of Institutional Asset Management, 2020, pp 143-168 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Derivative instruments, or simply derivatives, are contracts that essentially derive their value from the behavior of cash market instruments such as stocks, stock indexes, bonds, currencies, and commodities that underlie the contract. There are three general categories of derivatives: (1) futures and forwards, (2) options, and (3) swaps. Derivatives are either traded on an exchange or in the over-the-counter (OTC) market. That is, there are exchange-traded derivatives and OTC derivatives. Exchange-traded derivatives are standardized contracts. An advantage of OTC derivatives over exchange-traded derivatives is that they offer asset managers customized solutions for their investment strategy. In fact, one of the keys to the success of OTC derivatives is the flexibility of the payoff structures that can be created. A key difference between exchange-traded and OTC derivatives is that the former are guaranteed by the exchange, while the latter are the obligation of the non-exchange entity that is the counterparty. Thus, the user of an OTC derivative is subject to credit risk or counterparty risk…

Keywords: Investment Risks; Investment Vehicles; Portfolio Theory; Asset Pricing Theory; Mean-Variance Analysis; Measuring Return; Measuring Risk; Company Equity Analysis; Equity Valuation Models; Common Stock Alpha Strategies; Common Stock Beta Strategies; Smart Beta Strategies; Factor Investing; Equity Indexing; Equity Derivatives; Bond Analytics; Bond Pricing; Interest Rate Risk; Duration; Interest Rate Derivatives; Credit Derivatives; Multi-Asset Portfolio Strategies; Collective Investment Vehicles; Alternative Assets (search for similar items in EconPapers)
JEL-codes: G1 G11 G3 G30 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811221590_0006 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811221590_0006 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811221590_0006

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().