
16 Derivatives and Risk Management
C H A P T E R S U M M A R Y
Derivative securities are used for risk management.
A derivative security is one whose value depends on the
underlying asset on which the derivative contract is written.
In a forward contract, one party agrees to buy the underlying
security and the other party agrees to sell the same at a future
time at a price that is agreed upon at the time of entering
into the contract. ese are private contracts in the over-the-
counter market.
In a futures contract, one party agrees to buy the underlying
security and the other party agrees to sell the s