As we have seen in the previous step, VaR is a quantified measure of risk which is widely used in risk management practice. It’s therefore important to understand how to …
According to writers Allen, Babus, and Carletti in their 2009 study, financial crises occur following either bank runs or a sudden severe drop of asset prices in capital markets, both …
In this short video, Dr Hong Bo summarises some of the key topics discussed in Week 3. She outlines how investors use futures, options and forward contracts and explains their …
Payoff diagrams for options are more complicated than those of a futures contract. In this video, Dr Hong Bo expains how the payoff structure of an options contract does not …
Having looked at the features of options contracts, we can now move on to calculate the value of call options. The Black-Scholes Model In the early 1970’s, Myron Scholes, Robert …
What is an options contract? Options mean alternatives or flexibility. In financial terms, an options contract is another type of financial derivative. Similar to a futures contract, an options contract …
Under normal conditions, the futures price is higher than the spot (or cash) price. This is because the futures price generally incorporates costs that the seller would incur for buying …
We have already learnt that investors can use the futures market either to hedge or to speculate. But what does the payoff structure look like? In this video, Dr Hong …
The logic of using a futures contract is very similar to using a forward contract. Both concern transactions of an underlying asset (either commodities or financial securities) that are going …
The futures market refers to the market in which futures contracts are traded. Futures contracts concern transactions of underlying assets (either commodities or financial securities) that are going to take …
What is a forward contract? A forward contract is signed between party A and party B face to face (or ‘over the counter’) about a future transaction of an asset. …
In this article, you will be learning about the simplest and most common derivatives – forwards, futures and options – and how they can be used to manage risk. Here, …
What are derivatives? Derivatives are financial contracts that relate to future transactions of an underlying asset (either a tangible, durable commodity or a financial asset). Put simply, derivatives derive or …