خرید و دانلود نسخه کامل کتاب Elementary Financial Derivatives (A Guide to Trading and Valuation with Applications) – Original PDF

THE ROLE, RISKS, AND BENEFITS OF DERIVATIVES MARKETS Derivative instruments are securities that derive their value from an underlying asset. They offer investors global diversification in financial instruments and currencies, and promise to generate returns that are superior to traditional investments. Investors in derivatives can profit from changes in interest rates and equity markets around the world, currency exchange rate shifts, and changes in global supply and demand for various types of commodities such as precious and industrial metals, oil, and grains. There are two widely recognized benefits of derivative instruments: price discovery and risk management. Price Discovery How do we determine prices? Prices depend on a continu ous flow of information from around the world and require the highest possible degree of transparency. A broad range of various elements constantly have an impact on supply and demand for assets. Information flow concerning political situations, climatic and environmental conditions, debt situation, and societal behavioral patterns constantly impacts the price of a commodity, such as wheat, soybeans, and oil. This process is known as price discovery. Futures markets in particular are a useful tool to help discover prices. Futures markets are considered a primary means for determining the spot price of an asset. The futures market is more active than the spot market; hence, information taken from it is often considered more reliable. Futures markets’ 3THE ROLE, RISKS, AND BENEFITS OF DERIVATIVES MARKETS underlying assets can be geographically quite dispersed and hence have more than one spot price in existence. The price of the contract with the shortest time to expiration often serves as a proxy for the underlying spot price of an asset. Options are also relevant in price discovery, mostly in the way the market participants view markets’ volatility. If investors think that the markets will be volatile, the option premiums (i.e., their purchase prices) will spike higher