Options, Futures and Other Derivatives

Abstract

In this chapter, we describe some basics about options futures and the underlying derivative market. In risk management derivatives are main instruments for constructing various financial positions to hedge against or control financial risks. Here risk is a possibility of loss and hence can be a change in the prices of assets such as currency, stocks, or bonds that gives a loss. For different purposes, different kinds of derivatives can be constructed. One of the most commonly traded derivatives is option. There are two basic types of options, the American type and the European type.