Derivatives markets provide for price discovery and risk transfer for securities, commodities, and currencies. Derivatives include both standardized, exchange-traded instruments and bespoke contracts negotiated between broker/dealers and customers that have unique needs not easily satisfied by standard products.
Derivatives employ two primary instrument forms: futures and options (see Figure 3.2). In the remainder of this chapter, we look at the standard products first and then discuss more complex products at the end.
Figure 3.2.1 An option creates a right but not an obligation to perform or demand any activities depending ...