August 2004
Beginner to intermediate
248 pages
8h 6m
English
book
Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options
by Andrew M. Chisholm
Content preview from Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and OptionsBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
Chapter 2. Equity and Currency Forwards
INTRODUCTION
A forward contract is an agreement made directly between two parties to buy and to sell a commodity or financial asset:
on a specific date in the future;
at a fixed price that is agreed at the outset between the two parties.
Forwards are bilateral over-the-counter (OTC) transactions, and at least one of the two parties concerned is normally a bank or some other financial institution. OTC transactions are used extensively by corporations, traders and investing institutions who are looking for a deal that is tailored to meet their specific requirements. Futures are similar in their economic effects but are standardized contracts traded on organized and regulated exchanges (see Chapters 4 and 5). Forwards involve counterparty risk – the risk that the other party to the deal may default on its contractual obligations.
Suppose that a trader agrees today to buy a share in one year's time at a fixed price of $100. This is a forward purchase of the share, also called a long forward position. The graph in Figure 2.1 shows the trader's potential profits and losses on the deal for a range of possible share values at the point of delivery. For example, if the share is worth $150 in one year's time, then the trader buys it through the forward contract and can sell it immediately, achieving a $50 profit. However, if the share is only worth $50 in one year's time, then the trader is still obliged to buy it for $100. The loss in that instance is $50. ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.