Derivatives—Through the Window

The word ‘derivative’ originates from mathematics and refers to a variable, which has been derived from another variable. Derivatives are called so because they have no value of their own. They derive their value from the value of some other variables.

According to Alan Greenspan, Chairman, Board of Governors of the US Federal Reserve System:


By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it—a process that has undoubtedly improved national productivity growth and standards of living.


The primary ...

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