2

Derivative Instruments

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.

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Figure 3.2.1 An option creates a right but not an obligation to perform or demand any activities depending ...

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