financial services lecture 4 derivatives金融服务讲座4衍生物.docVIP

financial services lecture 4 derivatives：金融服务讲座4衍生物 Services Lecture 8: Derivatives General: 1) Derivatives are financial contracts whose value is based on the value of some underlying asset. The value is usually a function of asset price, and the contract always has a predetermined lifespan—it expires at some point. This is called expiration. 2) There are two basic types of derivative contracts: Forward or Futures contracts, and Options. Forwards and Futures are an agreement to buy an asset at a predetermined price, some time in the future. Option contractions give the holder the “option” to buy that asset at a predetermined price. But do not create an obligation. 3) Derivatives may be used for speculative purposes, e.g. gambling, or for insurance purposes, e.g. hedging. The contracts permit us to bet on the occurrence of an event, or buy protection against it. For example: we could make a bet on, or buy insurance against, the SP tumbling 500 points. 4) We can also use derivatives to fix the price of an asset several months (or years) in advance. This can be enormously valuable if you’re a wheat farmer, are about to by seed, and wish to lock in (with certainty) your profit. Derivatives, in this example, can allow a farmer to minimize his risk. 5) From hereon, we will focus on financial derivatives—derivatives on financial