CHAPTER 2

The Derivative Products

This chapter surveys at a high level the products traded on the derivatives market outlined in Chapter 1.

Recall that the preceding chapter defined a derivative as “a contract whose value derived from some underlying, such as a financial instrument or asset.” By this definition, a derivative comprises two key components: the contract itself and the underlying. An essential feature of the contract is that it lasts for a prescribed time period. During that period, the contract's value varies based on the performance of the underlying. Another essential feature of the contract is that it grants and imposes specified rights and obligations on both parties to the contract.

This chapter articulates the various schemes ...

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