Microsoft PowerPoint - PoF.ppt

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Definition of derivative securitiesƒ 126

A derivative is a contract to bu

y or sell something in the future,

namely the underlying.
ƒ

All contract details

(such as the price, the quantity to be bought or

sold, the maturity, etc.)

are fixed at the time you enter the

contract.
ƒ

The price of the derivative

depends on the underlying.

ƒ

The underlying can be everything as

long as it is clearly defined!

Examples:

ƒ

Financial prices: stocks, bonds, stock-indices, exchange rates
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Commodities: oil price, gold, copper, coffee, orange juice concentrate, wine, energy, weather
In most cases the underlying is the price of a traded asset!

Derivative securities: Introduction

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