Sensex Devta

Derivatives Analysis &Valuation

Forwards, Future, Option and Swap

Derivatives instrument : Commodity ,Currency, Interest, Equity

Forward: An agreement between two party , a buyer and a seller, that calls for the delivery of an assets at future date with a price agreed todays . the instrument can not be trade in any recognished stock exchange.

Future:two party involved in a future contract . the seller of the contract , who agrees to deliver the asset at the specified time in future and the buyer of the contract , who agrees to pay a fixed price and takes delivery of the asset. The futures contract is used by a buyer and seller in order t hedge other positions of the underling asses.

Option :An option is a contact in which the seller (also called the writer) , gives the buyer the right but not obligation to purchase from a designation asset at a specific price which is agreed upon at the time of entering into the contract

Swap:an agreement or transaction in which two or more parties exchange their cash flows at a predetermined series of payment . exchange of interest rate payment for specific maturity on an agreed upon notional principal. One party received fixed and received floating rate or vice versa