Chapter 1 Introduction

In the last 40 years, derivatives have become increasingly important in finance. Futures and options are actively traded on many exchanges throughout the world. Many different types of forward contracts, swaps, options, and other derivatives are entered into by financial institutions, fund managers, and corporate treasurers in the over-the-counter market. Derivatives are added to bond issues, used in executive compensation plans, embedded in capital investment opportunities, used to transfer risks in mortgages from the original lenders to investors, and so on. We have now reached the stage where those who work in finance, and many who work outside finance, need to understand how derivatives work, how they are used, ...

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