"In finance, a derivative is a contract that derives its value from the performance of an underlying entity."
Financial instruments whose value is derived from an underlying asset.
Forward Contracts: Agreements to buy or sell assets at a predetermined price and date in the future.
Futures Contracts: Standardized contracts traded on exchanges that enable the purchase or sale of commodities, securities, currencies or other underlying assets.
Options Contracts: Contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and time.
Swaps: Agreements between two parties to exchange financial instruments, cash flows or other valuables, typically used to hedge risk, lower financing costs or increase returns.
Hedging: Strategies aimed at reducing, transferring or eliminating financial risks associated with price fluctuations, currency fluctuations, interest rates or other variables.
Risk Management: Procedures and systems designed to identify, evaluate, monitor and control the risks associated with financial derivatives and other financial instruments.
Arbitrage: The practice of exploiting price discrepancies, inefficiencies or mispricings in financial markets to generate profits without taking market risk.
Black-Scholes Model: A mathematical formula that is used to calculate the fair prices or theoretical values of European call and put options on stocks.
Delta, Gamma, Theta and Vega: The main risk sensitivities or Greeks that measure the impact of changes in the underlying asset price, volatility, time and interest rates on the price of options.
Financial Engineering: The design, development and implementation of complex financial products and structures that combine different derivatives, assets, liabilities, tax treatments or other features to achieve specific goals or objectives.
Options: An option is a contract between two parties that gives the buyer the right but not the obligation to buy (call option) or sell (put option) an underlying asset at a specific price on or before a specific date.
Futures: A futures contract is a standardized agreement between two parties to buy or sell an underlying asset at an agreed price and date in the future. Futures are traded on exchanges and also used for hedging.
Forwards: A forward is an agreement between two parties to buy or sell an underlying asset at a specific price and date in the future. It is not traded on exchanges and is usually customized for the parties' needs.
Swaps: A swap is a contract between two parties to exchange cash flows, such as interest rates or currencies, based on a notional amount. Swaps are used for hedging, speculation, and arbitrage.
Credit derivatives: A credit derivative is a contract that allows one party to transfer credit risk to another party. Credit derivatives include credit default swaps and credit-linked notes.
Commodity derivatives: A commodity derivative is a financial instrument that derives its value from a commodity, such as crude oil, gold, or wheat. Commodity derivatives include futures, options, and swaps.
Equity derivatives: An equity derivative is a financial instrument that derives its value from an underlying equity, such as a stock index or a single stock. Equity derivatives include futures, options, and swaps.
Weather derivatives: A weather derivative is a financial instrument that allows a party to transfer weather risk to another party. Weather derivatives can be used for hedging or speculation purposes.
Interest rate derivatives: An interest rate derivative is a financial instrument that derives its value from an underlying interest rate. Interest rate derivatives include futures, options, and swaps.
Currency derivatives: A currency derivative is a financial instrument that derives its value from an underlying currency exchange rate. Currency derivatives include futures, options, and swaps.
Structured products: Structured products are derivatives that combine multiple underlying assets and strategies to create a customized investment product. Structured products include collateralized debt obligations (CDOs) and asset-backed securities (ABS).
Volatility derivatives: A volatility derivative is a financial instrument that derives its value from the expected volatility of an underlying asset. Volatility derivatives include options and futures.
"This underlying entity can be an asset, index, or interest rate..."
"Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets."
"Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps."
"Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange..."
"Derivatives are one of the three main categories of financial instruments, the other two being equity (i.e., stocks or shares) and debt (i.e., bonds and mortgages)."
"The oldest example of a derivative in history, attested to by Aristotle, is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, who made a profit in the exchange."
"However, Aristotle did not define this arrangement as a derivative but as a monopoly (Aristotle's Politics, Book I, Chapter XI)."
"Bucket shops, outlawed in 1936 in the US, are a more recent historical example."
"Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets."
"Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange..."
"Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps."
"In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges."
"While most derivatives are traded over-the-counter or on exchanges, most insurance contracts have developed into a separate industry."
"...increasing exposure to price movements for speculation..."
"...an asset, index, or interest rate..."
"Derivatives are one of the three main categories of financial instruments, the other two being equity (i.e., stocks or shares) and debt (i.e., bonds and mortgages)."
"Some of the more common derivatives include forwards, futures, options, swaps..."
"Derivatives can be used...getting access to otherwise hard-to-trade assets or markets."
"Some of the more common derivatives include...variations of these such as synthetic collateralized debt obligations and credit default swaps."