Derivatives
The derivatives market can be a fairly complex area, especially
to the uninitiated newcomer. In this short guide we aim to brief
you on the basics.
There has been a fair bit of turmoil recently regarding the derivatives
market, mainly because portfolio managers, regulators, senior
executives and even politicians have limited experience of this
somewhat tricky and complex business arena.
The best way of understanding derivatives is the notion of a
premium, some kinds of derivatives are similar and can be compared
to insurance, in the way that you pay an insurance policy to get
protection/ cover against a specific event, its a similar ball
game with derivative products that have a pay day based on the
occurrence of an event happening.
There are two main types of derivatives, these being linear and
non-linear. With the linear type derivative the payoff is a linear
function whereby every one-point movement is translated into a
related dollar value each contract. With a non-linear derivative
the payoff can change according to time and space.
There is quite a few resources on the Internet dedicated to derivatives
and there different forms, why not take a look around, its all
just a click of the mouse away, happy surfing.
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