CH01HullOFOD5Ecol.pptVIP

1 IntroductionChapter 1 2 The Nature of Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables 3 Examples of Derivatives Forward Contracts Futures Contracts Swaps Options Derivatives Markets Exchange traded Traditionally exchanges have used the open-outcry system, but increasingly they are switching to electronic trading Contracts are standard there is virtually no credit risk Over-the-counter (OTC) A computer- and telephone-linked network of dealers at financial institutions, corporations, and fund managers Contracts