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class="vector-toc-link" href="#Hedging"> <div class="vector-toc-text"> <span class="vector-toc-numb">3.2</span> <span>Hedging</span> </div> </a> <ul id="toc-Hedging-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Speculation" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Speculation"> <div class="vector-toc-text"> <span class="vector-toc-numb">3.3</span> <span>Speculation</span> </div> </a> <ul id="toc-Speculation-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Arbitrage" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Arbitrage"> <div class="vector-toc-text"> <span class="vector-toc-numb">3.4</span> <span>Arbitrage</span> </div> </a> <ul id="toc-Arbitrage-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Proportion_used_for_hedging_and_speculation" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Proportion_used_for_hedging_and_speculation"> <div class="vector-toc-text"> <span class="vector-toc-numb">3.5</span> <span>Proportion used for hedging and speculation</span> </div> </a> <ul id="toc-Proportion_used_for_hedging_and_speculation-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Types" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Types"> <div class="vector-toc-text"> <span class="vector-toc-numb">4</span> <span>Types</span> </div> </a> <button aria-controls="toc-Types-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Types subsection</span> </button> <ul id="toc-Types-sublist" class="vector-toc-list"> <li id="toc-Over-the-counter_derivatives" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Over-the-counter_derivatives"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.1</span> <span>Over-the-counter derivatives</span> </div> </a> <ul id="toc-Over-the-counter_derivatives-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Exchange-traded_derivatives" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Exchange-traded_derivatives"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.2</span> <span>Exchange-traded derivatives</span> </div> </a> <ul id="toc-Exchange-traded_derivatives-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Inverse_ETFs_and_leveraged_ETFs" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Inverse_ETFs_and_leveraged_ETFs"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.3</span> <span>Inverse ETFs and leveraged ETFs</span> </div> </a> <ul id="toc-Inverse_ETFs_and_leveraged_ETFs-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Common_derivative_contract" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Common_derivative_contract"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.4</span> <span>Common derivative contract</span> </div> </a> <ul id="toc-Common_derivative_contract-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Collateralized_debt_obligation" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Collateralized_debt_obligation"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.5</span> <span>Collateralized debt obligation</span> </div> </a> <ul id="toc-Collateralized_debt_obligation-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Credit_default_swap" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Credit_default_swap"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.6</span> <span>Credit default swap</span> </div> </a> <ul id="toc-Credit_default_swap-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Forwards" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Forwards"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.7</span> <span>Forwards</span> </div> </a> <ul id="toc-Forwards-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Futures" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Futures"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.8</span> <span>Futures</span> </div> </a> <ul id="toc-Futures-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Mortgage-backed_securities" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Mortgage-backed_securities"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.9</span> <span>Mortgage-backed securities</span> </div> </a> <ul id="toc-Mortgage-backed_securities-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Options" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Options"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.10</span> <span>Options</span> </div> </a> <ul id="toc-Options-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Swaps" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Swaps"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.11</span> <span>Swaps</span> </div> </a> <ul id="toc-Swaps-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Economic_function_of_the_derivative_market" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Economic_function_of_the_derivative_market"> <div class="vector-toc-text"> <span class="vector-toc-numb">5</span> <span>Economic function of the derivative market</span> </div> </a> <ul id="toc-Economic_function_of_the_derivative_market-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Valuation" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Valuation"> <div class="vector-toc-text"> <span class="vector-toc-numb">6</span> <span>Valuation</span> </div> </a> <button aria-controls="toc-Valuation-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Valuation subsection</span> </button> <ul id="toc-Valuation-sublist" class="vector-toc-list"> <li id="toc-Market_and_arbitrage-free_prices" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Market_and_arbitrage-free_prices"> <div class="vector-toc-text"> <span class="vector-toc-numb">6.1</span> <span>Market and arbitrage-free prices</span> </div> </a> <ul id="toc-Market_and_arbitrage-free_prices-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Determining_the_market_price" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Determining_the_market_price"> <div class="vector-toc-text"> <span class="vector-toc-numb">6.2</span> <span>Determining the market price</span> </div> </a> <ul id="toc-Determining_the_market_price-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Determining_the_arbitrage-free_price" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Determining_the_arbitrage-free_price"> <div class="vector-toc-text"> <span class="vector-toc-numb">6.3</span> <span>Determining the arbitrage-free price</span> </div> </a> <ul id="toc-Determining_the_arbitrage-free_price-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Risks" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Risks"> <div class="vector-toc-text"> <span class="vector-toc-numb">7</span> <span>Risks</span> </div> </a> <button aria-controls="toc-Risks-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Risks subsection</span> </button> <ul id="toc-Risks-sublist" class="vector-toc-list"> <li id="toc-Hidden_tail_risk" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Hidden_tail_risk"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.1</span> <span>Hidden tail risk</span> </div> </a> <ul id="toc-Hidden_tail_risk-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Leverage" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Leverage"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.2</span> <span>Leverage</span> </div> </a> <ul id="toc-Leverage-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Counterparty_risk" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Counterparty_risk"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.3</span> <span>Counterparty risk</span> </div> </a> <ul id="toc-Counterparty_risk-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Financial_reform_and_government_regulation" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Financial_reform_and_government_regulation"> <div class="vector-toc-text"> <span class="vector-toc-numb">8</span> <span>Financial reform and government regulation</span> </div> </a> <button aria-controls="toc-Financial_reform_and_government_regulation-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Financial reform and government regulation subsection</span> </button> <ul id="toc-Financial_reform_and_government_regulation-sublist" class="vector-toc-list"> <li id="toc-Reporting" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Reporting"> <div class="vector-toc-text"> <span class="vector-toc-numb">8.1</span> <span>Reporting</span> </div> </a> <ul id="toc-Reporting-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Glossary" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Glossary"> <div class="vector-toc-text"> <span class="vector-toc-numb">9</span> <span>Glossary</span> </div> </a> <ul id="toc-Glossary-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-See_also" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#See_also"> <div class="vector-toc-text"> <span class="vector-toc-numb">10</span> <span>See also</span> </div> </a> <ul id="toc-See_also-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-References" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#References"> <div class="vector-toc-text"> <span class="vector-toc-numb">11</span> <span>References</span> </div> </a> <ul id="toc-References-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Further_reading" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#Further_reading"> <div class="vector-toc-text"> <span class="vector-toc-numb">12</span> <span>Further reading</span> </div> </a> <ul id="toc-Further_reading-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-External_links" class="vector-toc-list-item vector-toc-level-1"> <a class="vector-toc-link" href="#External_links"> <div class="vector-toc-text"> <span class="vector-toc-numb">13</span> <span>External links</span> </div> </a> <ul id="toc-External_links-sublist" class="vector-toc-list"> </ul> </li> </ul> </div> </div> </nav> </div> </div> <div class="mw-content-container"> <main id="content" class="mw-body"> <header class="mw-body-header vector-page-titlebar"> <nav aria-label="Contents" class="vector-toc-landmark"> <div id="vector-page-titlebar-toc" class="vector-dropdown vector-page-titlebar-toc vector-button-flush-left" title="Table of Contents" > <input 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<input type="checkbox" id="p-lang-btn-checkbox" role="button" aria-haspopup="true" data-event-name="ui.dropdown-p-lang-btn" class="vector-dropdown-checkbox mw-interlanguage-selector" aria-label="Go to an article in another language. Available in 54 languages" > <label id="p-lang-btn-label" for="p-lang-btn-checkbox" class="vector-dropdown-label cdx-button cdx-button--fake-button cdx-button--fake-button--enabled cdx-button--weight-quiet cdx-button--action-progressive mw-portlet-lang-heading-54" aria-hidden="true" ><span class="vector-icon mw-ui-icon-language-progressive mw-ui-icon-wikimedia-language-progressive"></span> <span class="vector-dropdown-label-text">54 languages</span> </label> <div class="vector-dropdown-content"> <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li class="interlanguage-link interwiki-ar mw-list-item"><a href="https://ar.wikipedia.org/wiki/%D8%B9%D9%82%D8%AF_%D8%A7%D8%B4%D8%AA%D9%82%D8%A7%D9%82%D9%8A" title="عقد اشتقاقي – Arabic" lang="ar" hreflang="ar" data-title="عقد اشتقاقي" data-language-autonym="العربية" data-language-local-name="Arabic" class="interlanguage-link-target"><span>العربية</span></a></li><li class="interlanguage-link interwiki-ast mw-list-item"><a href="https://ast.wikipedia.org/wiki/Deriv%C3%A1u_financieru" title="Deriváu financieru – Asturian" lang="ast" hreflang="ast" data-title="Deriváu financieru" data-language-autonym="Asturianu" data-language-local-name="Asturian" class="interlanguage-link-target"><span>Asturianu</span></a></li><li class="interlanguage-link interwiki-az mw-list-item"><a href="https://az.wikipedia.org/wiki/T%C3%B6r%C9%99m%C9%99_Maliyy%C9%99_Al%C9%99tl%C9%99ri" title="Törəmə Maliyyə Alətləri – Azerbaijani" lang="az" hreflang="az" data-title="Törəmə Maliyyə Alətləri" data-language-autonym="Azərbaycanca" data-language-local-name="Azerbaijani" class="interlanguage-link-target"><span>Azərbaycanca</span></a></li><li class="interlanguage-link interwiki-be mw-list-item"><a href="https://be.wikipedia.org/wiki/%D0%92%D1%8B%D1%82%D0%B2%D0%BE%D1%80%D0%BD%D1%8B_%D1%96%D0%BD%D1%81%D1%82%D1%80%D1%83%D0%BC%D0%B5%D0%BD%D1%82_(%D0%B4%D1%8D%D1%80%D1%8B%D0%B2%D0%B0%D1%82%D1%8B%D1%9E)" title="Вытворны інструмент (дэрыватыў) – Belarusian" lang="be" hreflang="be" data-title="Вытворны інструмент (дэрыватыў)" data-language-autonym="Беларуская" data-language-local-name="Belarusian" class="interlanguage-link-target"><span>Беларуская</span></a></li><li class="interlanguage-link interwiki-bg mw-list-item"><a href="https://bg.wikipedia.org/wiki/%D0%94%D0%B5%D1%80%D0%B8%D0%B2%D0%B0%D1%82_(%D1%84%D0%B8%D0%BD%D0%B0%D0%BD%D1%81%D0%B8)" title="Дериват (финанси) – Bulgarian" lang="bg" hreflang="bg" data-title="Дериват (финанси)" data-language-autonym="Български" data-language-local-name="Bulgarian" class="interlanguage-link-target"><span>Български</span></a></li><li class="interlanguage-link interwiki-ca mw-list-item"><a href="https://ca.wikipedia.org/wiki/Derivat_financer" title="Derivat financer – Catalan" lang="ca" hreflang="ca" data-title="Derivat financer" data-language-autonym="Català" data-language-local-name="Catalan" class="interlanguage-link-target"><span>Català</span></a></li><li class="interlanguage-link interwiki-cs mw-list-item"><a href="https://cs.wikipedia.org/wiki/Finan%C4%8Dn%C3%AD_deriv%C3%A1t" title="Finanční derivát – Czech" lang="cs" hreflang="cs" data-title="Finanční derivát" data-language-autonym="Čeština" data-language-local-name="Czech" class="interlanguage-link-target"><span>Čeština</span></a></li><li class="interlanguage-link interwiki-da mw-list-item"><a href="https://da.wikipedia.org/wiki/Derivat_(finansiering)" title="Derivat (finansiering) – Danish" lang="da" hreflang="da" data-title="Derivat (finansiering)" data-language-autonym="Dansk" data-language-local-name="Danish" class="interlanguage-link-target"><span>Dansk</span></a></li><li class="interlanguage-link interwiki-de mw-list-item"><a href="https://de.wikipedia.org/wiki/Derivat_(Wirtschaft)" title="Derivat (Wirtschaft) – German" lang="de" hreflang="de" data-title="Derivat (Wirtschaft)" data-language-autonym="Deutsch" data-language-local-name="German" class="interlanguage-link-target"><span>Deutsch</span></a></li><li class="interlanguage-link interwiki-et mw-list-item"><a href="https://et.wikipedia.org/wiki/Tuletisinstrument" title="Tuletisinstrument – Estonian" lang="et" hreflang="et" data-title="Tuletisinstrument" data-language-autonym="Eesti" data-language-local-name="Estonian" class="interlanguage-link-target"><span>Eesti</span></a></li><li class="interlanguage-link interwiki-el mw-list-item"><a href="https://el.wikipedia.org/wiki/%CE%A0%CE%B1%CF%81%CE%AC%CE%B3%CF%89%CE%B3%CE%BF_%CF%80%CF%81%CE%BF%CF%8A%CF%8C%CE%BD" title="Παράγωγο προϊόν – Greek" lang="el" hreflang="el" data-title="Παράγωγο προϊόν" data-language-autonym="Ελληνικά" data-language-local-name="Greek" class="interlanguage-link-target"><span>Ελληνικά</span></a></li><li class="interlanguage-link interwiki-es mw-list-item"><a href="https://es.wikipedia.org/wiki/Derivado_financiero" title="Derivado financiero – Spanish" lang="es" hreflang="es" data-title="Derivado financiero" data-language-autonym="Español" data-language-local-name="Spanish" class="interlanguage-link-target"><span>Español</span></a></li><li class="interlanguage-link interwiki-eo mw-list-item"><a href="https://eo.wikipedia.org/wiki/Deriva%C4%B5o_(ekonomio)" title="Derivaĵo (ekonomio) – Esperanto" lang="eo" hreflang="eo" data-title="Derivaĵo (ekonomio)" data-language-autonym="Esperanto" data-language-local-name="Esperanto" class="interlanguage-link-target"><span>Esperanto</span></a></li><li class="interlanguage-link interwiki-eu mw-list-item"><a href="https://eu.wikipedia.org/wiki/Deribatu_(finantza)" title="Deribatu (finantza) – Basque" lang="eu" hreflang="eu" data-title="Deribatu (finantza)" data-language-autonym="Euskara" data-language-local-name="Basque" class="interlanguage-link-target"><span>Euskara</span></a></li><li class="interlanguage-link interwiki-fa mw-list-item"><a href="https://fa.wikipedia.org/wiki/%D8%A7%D8%A8%D8%B2%D8%A7%D8%B1_%D9%85%D8%B4%D8%AA%D9%82%D9%87" title="ابزار مشتقه – Persian" lang="fa" hreflang="fa" data-title="ابزار مشتقه" data-language-autonym="فارسی" data-language-local-name="Persian" class="interlanguage-link-target"><span>فارسی</span></a></li><li class="interlanguage-link interwiki-fr mw-list-item"><a href="https://fr.wikipedia.org/wiki/Produit_d%C3%A9riv%C3%A9_financier" title="Produit dérivé financier – French" lang="fr" hreflang="fr" data-title="Produit dérivé financier" data-language-autonym="Français" data-language-local-name="French" class="interlanguage-link-target"><span>Français</span></a></li><li class="interlanguage-link interwiki-ko mw-list-item"><a href="https://ko.wikipedia.org/wiki/%ED%8C%8C%EC%83%9D%EC%83%81%ED%92%88" title="파생상품 – Korean" lang="ko" hreflang="ko" data-title="파생상품" data-language-autonym="한국어" data-language-local-name="Korean" class="interlanguage-link-target"><span>한국어</span></a></li><li class="interlanguage-link interwiki-hy mw-list-item"><a href="https://hy.wikipedia.org/wiki/%D4%B1%D5%AE%D5%A1%D5%B6%D6%81%D5%B5%D5%A1%D5%AC_%D5%A3%D5%B8%D6%80%D5%AE%D5%AB%D6%84%D5%B6%D5%A5%D6%80" title="Ածանցյալ գործիքներ – Armenian" lang="hy" hreflang="hy" data-title="Ածանցյալ գործիքներ" data-language-autonym="Հայերեն" data-language-local-name="Armenian" class="interlanguage-link-target"><span>Հայերեն</span></a></li><li class="interlanguage-link interwiki-hi mw-list-item"><a href="https://hi.wikipedia.org/wiki/%E0%A4%B5%E0%A5%8D%E0%A4%AF%E0%A5%81%E0%A4%A4%E0%A5%8D%E0%A4%AA%E0%A4%BE%E0%A4%A6%E0%A4%A8_(%E0%A4%B5%E0%A4%BF%E0%A4%A4%E0%A5%8D%E0%A4%A4)" title="व्युत्पादन (वित्त) – Hindi" lang="hi" hreflang="hi" data-title="व्युत्पादन (वित्त)" data-language-autonym="हिन्दी" data-language-local-name="Hindi" class="interlanguage-link-target"><span>हिन्दी</span></a></li><li class="interlanguage-link interwiki-hr mw-list-item"><a href="https://hr.wikipedia.org/wiki/Izvedenica_(financije)" title="Izvedenica (financije) – Croatian" lang="hr" hreflang="hr" data-title="Izvedenica (financije)" data-language-autonym="Hrvatski" data-language-local-name="Croatian" class="interlanguage-link-target"><span>Hrvatski</span></a></li><li class="interlanguage-link interwiki-id mw-list-item"><a href="https://id.wikipedia.org/wiki/Derivatif" title="Derivatif – Indonesian" lang="id" hreflang="id" data-title="Derivatif" data-language-autonym="Bahasa Indonesia" data-language-local-name="Indonesian" class="interlanguage-link-target"><span>Bahasa Indonesia</span></a></li><li class="interlanguage-link interwiki-is mw-list-item"><a href="https://is.wikipedia.org/wiki/Aflei%C3%B0a_(fj%C3%A1rm%C3%A1l)" title="Afleiða (fjármál) – Icelandic" lang="is" hreflang="is" data-title="Afleiða (fjármál)" data-language-autonym="Íslenska" data-language-local-name="Icelandic" class="interlanguage-link-target"><span>Íslenska</span></a></li><li class="interlanguage-link interwiki-it mw-list-item"><a href="https://it.wikipedia.org/wiki/Strumento_derivato" title="Strumento derivato – Italian" lang="it" hreflang="it" data-title="Strumento derivato" data-language-autonym="Italiano" data-language-local-name="Italian" class="interlanguage-link-target"><span>Italiano</span></a></li><li class="interlanguage-link interwiki-he mw-list-item"><a href="https://he.wikipedia.org/wiki/%D7%A0%D7%92%D7%96%D7%A8%D7%99%D7%9D" title="נגזרים – Hebrew" lang="he" hreflang="he" data-title="נגזרים" data-language-autonym="עברית" data-language-local-name="Hebrew" class="interlanguage-link-target"><span>עברית</span></a></li><li class="interlanguage-link interwiki-kn mw-list-item"><a href="https://kn.wikipedia.org/wiki/%E0%B2%89%E0%B2%A4%E0%B3%8D%E0%B2%AA%E0%B2%A8%E0%B3%8D%E0%B2%A8_(%E0%B2%B9%E0%B2%A3%E0%B2%95%E0%B2%BE%E0%B2%B8%E0%B3%81)" title="ಉತ್ಪನ್ನ (ಹಣಕಾಸು) – Kannada" lang="kn" hreflang="kn" data-title="ಉತ್ಪನ್ನ (ಹಣಕಾಸು)" data-language-autonym="ಕನ್ನಡ" data-language-local-name="Kannada" class="interlanguage-link-target"><span>ಕನ್ನಡ</span></a></li><li class="interlanguage-link interwiki-kk mw-list-item"><a href="https://kk.wikipedia.org/wiki/%D0%A2%D1%83%D1%8B%D0%BD%D0%B4%D1%8B_%D2%9B%D0%B0%D1%80%D0%B6%D1%8B_%D2%9B%D2%B1%D1%80%D0%B0%D0%BB%D0%B4%D0%B0%D1%80%D1%8B" title="Туынды қаржы құралдары – Kazakh" lang="kk" hreflang="kk" data-title="Туынды қаржы құралдары" data-language-autonym="Қазақша" data-language-local-name="Kazakh" class="interlanguage-link-target"><span>Қазақша</span></a></li><li class="interlanguage-link interwiki-ky mw-list-item"><a href="https://ky.wikipedia.org/wiki/%D0%94%D0%B5%D1%80%D0%B8%D0%B2%D0%B0%D1%82%D0%B8%D0%B2" title="Дериватив – Kyrgyz" lang="ky" hreflang="ky" data-title="Дериватив" data-language-autonym="Кыргызча" data-language-local-name="Kyrgyz" class="interlanguage-link-target"><span>Кыргызча</span></a></li><li class="interlanguage-link interwiki-la mw-list-item"><a href="https://la.wikipedia.org/wiki/Negotium_derivatum" title="Negotium derivatum – Latin" lang="la" hreflang="la" data-title="Negotium derivatum" data-language-autonym="Latina" data-language-local-name="Latin" class="interlanguage-link-target"><span>Latina</span></a></li><li class="interlanguage-link interwiki-lv mw-list-item"><a href="https://lv.wikipedia.org/wiki/Atvasin%C4%81tie_finan%C5%A1u_instrumenti" title="Atvasinātie finanšu instrumenti – Latvian" lang="lv" hreflang="lv" data-title="Atvasinātie finanšu instrumenti" data-language-autonym="Latviešu" data-language-local-name="Latvian" class="interlanguage-link-target"><span>Latviešu</span></a></li><li class="interlanguage-link interwiki-lt mw-list-item"><a href="https://lt.wikipedia.org/wiki/I%C5%A1vestin%C4%97_finansin%C4%97_priemon%C4%97" title="Išvestinė finansinė priemonė – Lithuanian" lang="lt" hreflang="lt" data-title="Išvestinė finansinė priemonė" data-language-autonym="Lietuvių" data-language-local-name="Lithuanian" class="interlanguage-link-target"><span>Lietuvių</span></a></li><li class="interlanguage-link interwiki-hu mw-list-item"><a href="https://hu.wikipedia.org/wiki/Sz%C3%A1rmaztatott_%C3%BCgylet" title="Származtatott ügylet – Hungarian" lang="hu" hreflang="hu" data-title="Származtatott ügylet" data-language-autonym="Magyar" data-language-local-name="Hungarian" class="interlanguage-link-target"><span>Magyar</span></a></li><li class="interlanguage-link interwiki-mk mw-list-item"><a href="https://mk.wikipedia.org/wiki/%D0%A4%D0%B8%D0%BD%D0%B0%D0%BD%D1%81%D0%B8%D1%81%D0%BA%D0%B8_%D0%B4%D0%B5%D1%80%D0%B8%D0%B2%D0%B0%D1%82" title="Финансиски дериват – Macedonian" lang="mk" hreflang="mk" data-title="Финансиски дериват" data-language-autonym="Македонски" data-language-local-name="Macedonian" class="interlanguage-link-target"><span>Македонски</span></a></li><li class="interlanguage-link interwiki-nl mw-list-item"><a href="https://nl.wikipedia.org/wiki/Financieel_derivaat" title="Financieel derivaat – Dutch" lang="nl" hreflang="nl" data-title="Financieel derivaat" data-language-autonym="Nederlands" data-language-local-name="Dutch" class="interlanguage-link-target"><span>Nederlands</span></a></li><li class="interlanguage-link interwiki-ja mw-list-item"><a href="https://ja.wikipedia.org/wiki/%E3%83%87%E3%83%AA%E3%83%90%E3%83%86%E3%82%A3%E3%83%96" title="デリバティブ – Japanese" lang="ja" hreflang="ja" data-title="デリバティブ" data-language-autonym="日本語" data-language-local-name="Japanese" class="interlanguage-link-target"><span>日本語</span></a></li><li class="interlanguage-link interwiki-no mw-list-item"><a href="https://no.wikipedia.org/wiki/Derivat_(finans)" title="Derivat (finans) – Norwegian Bokmål" lang="nb" hreflang="nb" data-title="Derivat (finans)" data-language-autonym="Norsk bokmål" data-language-local-name="Norwegian Bokmål" class="interlanguage-link-target"><span>Norsk bokmål</span></a></li><li class="interlanguage-link interwiki-uz mw-list-item"><a href="https://uz.wikipedia.org/wiki/Ishlab_chiqarish_vositasi" title="Ishlab chiqarish vositasi – Uzbek" lang="uz" hreflang="uz" data-title="Ishlab chiqarish vositasi" data-language-autonym="Oʻzbekcha / ўзбекча" data-language-local-name="Uzbek" class="interlanguage-link-target"><span>Oʻzbekcha / ўзбекча</span></a></li><li class="interlanguage-link interwiki-nds mw-list-item"><a href="https://nds.wikipedia.org/wiki/Derivat_(Weertschop)" title="Derivat (Weertschop) – Low German" lang="nds" hreflang="nds" data-title="Derivat (Weertschop)" data-language-autonym="Plattdüütsch" data-language-local-name="Low German" class="interlanguage-link-target"><span>Plattdüütsch</span></a></li><li class="interlanguage-link interwiki-pl mw-list-item"><a href="https://pl.wikipedia.org/wiki/Instrument_pochodny" title="Instrument pochodny – Polish" lang="pl" hreflang="pl" data-title="Instrument pochodny" data-language-autonym="Polski" data-language-local-name="Polish" class="interlanguage-link-target"><span>Polski</span></a></li><li class="interlanguage-link interwiki-pt mw-list-item"><a href="https://pt.wikipedia.org/wiki/Derivativo" title="Derivativo – Portuguese" lang="pt" hreflang="pt" data-title="Derivativo" data-language-autonym="Português" data-language-local-name="Portuguese" class="interlanguage-link-target"><span>Português</span></a></li><li class="interlanguage-link interwiki-ro mw-list-item"><a href="https://ro.wikipedia.org/wiki/Instrumente_financiare_derivate" title="Instrumente financiare derivate – Romanian" lang="ro" hreflang="ro" data-title="Instrumente financiare derivate" data-language-autonym="Română" data-language-local-name="Romanian" class="interlanguage-link-target"><span>Română</span></a></li><li class="interlanguage-link interwiki-ru mw-list-item"><a href="https://ru.wikipedia.org/wiki/%D0%9F%D1%80%D0%BE%D0%B8%D0%B7%D0%B2%D0%BE%D0%B4%D0%BD%D1%8B%D0%B9_%D1%84%D0%B8%D0%BD%D0%B0%D0%BD%D1%81%D0%BE%D0%B2%D1%8B%D0%B9_%D0%B8%D0%BD%D1%81%D1%82%D1%80%D1%83%D0%BC%D0%B5%D0%BD%D1%82" title="Производный финансовый инструмент – Russian" lang="ru" hreflang="ru" data-title="Производный финансовый инструмент" data-language-autonym="Русский" data-language-local-name="Russian" class="interlanguage-link-target"><span>Русский</span></a></li><li class="interlanguage-link interwiki-simple mw-list-item"><a href="https://simple.wikipedia.org/wiki/Derivative_(finance)" title="Derivative (finance) – Simple English" lang="en-simple" hreflang="en-simple" data-title="Derivative (finance)" data-language-autonym="Simple English" data-language-local-name="Simple English" class="interlanguage-link-target"><span>Simple English</span></a></li><li class="interlanguage-link interwiki-sk mw-list-item"><a href="https://sk.wikipedia.org/wiki/Deriv%C3%A1t_(financie)" title="Derivát (financie) – Slovak" lang="sk" hreflang="sk" data-title="Derivát (financie)" data-language-autonym="Slovenčina" data-language-local-name="Slovak" class="interlanguage-link-target"><span>Slovenčina</span></a></li><li class="interlanguage-link interwiki-sl mw-list-item"><a href="https://sl.wikipedia.org/wiki/Izvedeni_finan%C4%8Dni_instrument" title="Izvedeni finančni instrument – Slovenian" lang="sl" hreflang="sl" data-title="Izvedeni finančni instrument" data-language-autonym="Slovenščina" data-language-local-name="Slovenian" class="interlanguage-link-target"><span>Slovenščina</span></a></li><li class="interlanguage-link interwiki-fi mw-list-item"><a href="https://fi.wikipedia.org/wiki/Johdannainen" title="Johdannainen – Finnish" lang="fi" hreflang="fi" data-title="Johdannainen" data-language-autonym="Suomi" data-language-local-name="Finnish" class="interlanguage-link-target"><span>Suomi</span></a></li><li class="interlanguage-link interwiki-sv mw-list-item"><a href="https://sv.wikipedia.org/wiki/Derivatinstrument" title="Derivatinstrument – Swedish" lang="sv" hreflang="sv" data-title="Derivatinstrument" data-language-autonym="Svenska" data-language-local-name="Swedish" class="interlanguage-link-target"><span>Svenska</span></a></li><li class="interlanguage-link interwiki-tt mw-list-item"><a href="https://tt.wikipedia.org/wiki/%C3%87%C4%B1%C4%9Far%C4%B1lma_finans_qoral%C4%B1" title="Çığarılma finans qoralı – Tatar" lang="tt" hreflang="tt" data-title="Çığarılma finans qoralı" data-language-autonym="Татарча / tatarça" data-language-local-name="Tatar" class="interlanguage-link-target"><span>Татарча / tatarça</span></a></li><li class="interlanguage-link interwiki-th mw-list-item"><a href="https://th.wikipedia.org/wiki/%E0%B8%95%E0%B8%A3%E0%B8%B2%E0%B8%AA%E0%B8%B2%E0%B8%A3%E0%B8%AD%E0%B8%99%E0%B8%B8%E0%B8%9E%E0%B8%B1%E0%B8%99%E0%B8%98%E0%B9%8C" title="ตราสารอนุพันธ์ – Thai" lang="th" hreflang="th" data-title="ตราสารอนุพันธ์" data-language-autonym="ไทย" data-language-local-name="Thai" class="interlanguage-link-target"><span>ไทย</span></a></li><li class="interlanguage-link interwiki-tr mw-list-item"><a href="https://tr.wikipedia.org/wiki/T%C3%BCrev_(finans)" title="Türev (finans) – Turkish" lang="tr" hreflang="tr" data-title="Türev (finans)" data-language-autonym="Türkçe" data-language-local-name="Turkish" class="interlanguage-link-target"><span>Türkçe</span></a></li><li class="interlanguage-link interwiki-uk mw-list-item"><a href="https://uk.wikipedia.org/wiki/%D0%9F%D0%BE%D1%85%D1%96%D0%B4%D0%BD%D0%B8%D0%B9_%D1%84%D1%96%D0%BD%D0%B0%D0%BD%D1%81%D0%BE%D0%B2%D0%B8%D0%B9_%D1%96%D0%BD%D1%81%D1%82%D1%80%D1%83%D0%BC%D0%B5%D0%BD%D1%82" title="Похідний фінансовий інструмент – Ukrainian" lang="uk" hreflang="uk" data-title="Похідний фінансовий інструмент" data-language-autonym="Українська" data-language-local-name="Ukrainian" class="interlanguage-link-target"><span>Українська</span></a></li><li class="interlanguage-link interwiki-vi mw-list-item"><a href="https://vi.wikipedia.org/wiki/Ph%C3%A1i_sinh_(t%C3%A0i_ch%C3%ADnh)" title="Phái sinh (tài chính) – Vietnamese" lang="vi" hreflang="vi" data-title="Phái sinh (tài chính)" data-language-autonym="Tiếng Việt" data-language-local-name="Vietnamese" class="interlanguage-link-target"><span>Tiếng Việt</span></a></li><li class="interlanguage-link interwiki-wuu mw-list-item"><a href="https://wuu.wikipedia.org/wiki/%E9%87%91%E8%9E%8D%E8%A1%8D%E7%94%9F%E5%B7%A5%E5%85%B7" title="金融衍生工具 – Wu" lang="wuu" hreflang="wuu" data-title="金融衍生工具" data-language-autonym="吴语" data-language-local-name="Wu" class="interlanguage-link-target"><span>吴语</span></a></li><li class="interlanguage-link interwiki-zh-yue mw-list-item"><a href="https://zh-yue.wikipedia.org/wiki/%E9%87%91%E8%9E%8D%E8%A1%8D%E7%94%9F%E5%B7%A5%E5%85%B7" title="金融衍生工具 – Cantonese" lang="yue" hreflang="yue" data-title="金融衍生工具" data-language-autonym="粵語" data-language-local-name="Cantonese" class="interlanguage-link-target"><span>粵語</span></a></li><li class="interlanguage-link interwiki-zh mw-list-item"><a href="https://zh.wikipedia.org/wiki/%E9%87%91%E8%9E%8D%E8%A1%8D%E7%94%9F%E5%B7%A5%E5%85%B7" title="金融衍生工具 – Chinese" lang="zh" hreflang="zh" data-title="金融衍生工具" data-language-autonym="中文" data-language-local-name="Chinese" class="interlanguage-link-target"><span>中文</span></a></li> </ul> <div class="after-portlet after-portlet-lang"><span class="wb-langlinks-edit wb-langlinks-link"><a href="https://www.wikidata.org/wiki/Special:EntityPage/Q66295#sitelinks-wikipedia" title="Edit interlanguage links" class="wbc-editpage">Edit links</a></span></div> </div> </div> </div> </header> <div class="vector-page-toolbar"> <div class="vector-page-toolbar-container"> <div id="left-navigation"> <nav aria-label="Namespaces"> <div id="p-associated-pages" class="vector-menu vector-menu-tabs mw-portlet mw-portlet-associated-pages" > <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li id="ca-nstab-main" class="selected vector-tab-noicon mw-list-item"><a href="/wiki/Derivative_(finance)" title="View the content page [c]" accesskey="c"><span>Article</span></a></li><li id="ca-talk" class="vector-tab-noicon mw-list-item"><a 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<div class="mw-indicators"> </div> <div id="siteSub" class="noprint">From Wikipedia, the free encyclopedia</div> </div> <div id="contentSub"><div id="mw-content-subtitle"><span class="mw-redirectedfrom">(Redirected from <a href="/w/index.php?title=Commodity_derivative&redirect=no" class="mw-redirect" title="Commodity derivative">Commodity derivative</a>)</span></div></div> <div id="mw-content-text" class="mw-body-content"><div class="mw-content-ltr mw-parser-output" lang="en" dir="ltr"><div class="shortdescription nomobile noexcerpt noprint searchaux" style="display:none">Type of financial contract</div> <style data-mw-deduplicate="TemplateStyles:r1236090951">.mw-parser-output .hatnote{font-style:italic}.mw-parser-output div.hatnote{padding-left:1.6em;margin-bottom:0.5em}.mw-parser-output .hatnote i{font-style:normal}.mw-parser-output .hatnote+link+.hatnote{margin-top:-0.5em}@media print{body.ns-0 .mw-parser-output .hatnote{display:none!important}}</style><div role="note" class="hatnote navigation-not-searchable">This article is about the term as used in finance. For the <a href="/wiki/Calculus" title="Calculus">calculus</a> term, see <a href="/wiki/Derivative" title="Derivative">Derivative</a>. For other uses, see <a href="/wiki/Derivative_(disambiguation)" class="mw-disambig" title="Derivative (disambiguation)">Derivative (disambiguation)</a>.</div> <p class="mw-empty-elt"> </p> <style data-mw-deduplicate="TemplateStyles:r1129693374">.mw-parser-output .hlist dl,.mw-parser-output .hlist ol,.mw-parser-output .hlist ul{margin:0;padding:0}.mw-parser-output .hlist dd,.mw-parser-output .hlist dt,.mw-parser-output .hlist li{margin:0;display:inline}.mw-parser-output .hlist.inline,.mw-parser-output .hlist.inline dl,.mw-parser-output .hlist.inline ol,.mw-parser-output .hlist.inline ul,.mw-parser-output .hlist dl dl,.mw-parser-output .hlist dl ol,.mw-parser-output .hlist dl ul,.mw-parser-output .hlist ol dl,.mw-parser-output .hlist ol ol,.mw-parser-output .hlist ol ul,.mw-parser-output .hlist ul dl,.mw-parser-output .hlist ul ol,.mw-parser-output .hlist ul ul{display:inline}.mw-parser-output .hlist .mw-empty-li{display:none}.mw-parser-output .hlist dt::after{content:": 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<ul><li><a href="/wiki/Angel_investor" title="Angel investor">Angel investor</a></li> <li><a href="/wiki/Bull_(stock_market_speculator)" title="Bull (stock market speculator)">Bull (stock market speculator)</a></li> <li><a href="/wiki/Financial_planner" title="Financial planner">Financial planner</a></li> <li><a href="/wiki/Investor" title="Investor">Investor</a> <ul><li><a href="/wiki/Institutional_investor" title="Institutional investor">institutional</a></li></ul></li> <li><a href="/wiki/Retail" title="Retail">Retail</a></li> <li><a href="/wiki/Speculation" title="Speculation">Speculator</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;"> <a href="/wiki/Financial_centre" title="Financial centre">Locations</a></th></tr><tr><td class="sidebar-content hlist" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Financial_centre" title="Financial centre">Financial centres</a></li> <li><a href="/wiki/Offshore_financial_centre" title="Offshore financial centre">Offshore financial centres</a></li> <li><a href="/wiki/Conduit_and_sink_OFCs" title="Conduit and sink OFCs">Conduit and sink OFCs</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Financial_instrument" title="Financial instrument">Instruments</a></div><div class="sidebar-list-content mw-collapsible-content" style="padding-left:2.0em;padding-right:2.0em;"><div class="hlist"> <ul><li><a href="/wiki/Bond_(finance)" title="Bond (finance)">Bond</a></li> <li><a href="/wiki/Cash" title="Cash">Cash</a></li> <li><a href="/wiki/Collateralised_debt_obligation" class="mw-redirect" title="Collateralised debt obligation">Collateralised debt obligation</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default swap</a></li> <li><a href="/wiki/Time_deposit" title="Time deposit">Time deposit</a> (<a href="/wiki/Certificate_of_deposit" title="Certificate of deposit">certificate of deposit</a>)</li> <li><a href="/wiki/Line_of_credit" title="Line of credit">Credit line</a></li> <li><a href="/wiki/Deposit_account" title="Deposit account">Deposit</a></li> <li><a class="mw-selflink selflink">Derivative</a></li> <li><a href="/wiki/Futures_contract" title="Futures contract">Futures contract</a></li> <li><a href="/wiki/Indemnity" title="Indemnity">Indemnity</a></li> <li><a href="/wiki/Insurance" title="Insurance">Insurance</a></li> <li><a href="/wiki/Letter_of_credit" title="Letter of credit">Letter of credit</a></li> <li><a href="/wiki/Loan" title="Loan">Loan</a></li> <li><a href="/wiki/Mortgage" title="Mortgage">Mortgage</a></li></ul> <div class="hlist"><ul><li><a href="/wiki/Option_(finance)" title="Option (finance)">Option</a> (<a href="/wiki/Call_option" title="Call option">call</a></li><li><a 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var(--color-base)"><a href="/wiki/Personal_finance" title="Personal finance">Personal</a></div><div class="sidebar-list-content mw-collapsible-content"> <ul><li><a href="/wiki/Credit_(finance)" class="mw-redirect" title="Credit (finance)">Credit</a> / <a href="/wiki/Consumer_debt" title="Consumer debt">Debt</a></li> <li><a href="/wiki/Employment_contract" title="Employment contract">Employment contract</a></li> <li><a href="/wiki/Financial_planner" title="Financial planner">Financial planning</a></li> <li><div class="hlist"><ul><li><a href="/wiki/Retirement" title="Retirement">Retirement</a></li><li><a href="/wiki/Student_loan" title="Student loan">Student loan</a></li></ul></div></li></ul></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Public_finance" title="Public finance">Public</a></div><div class="sidebar-list-content 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title="Warrant of payment">Warrant of payment</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Bank" title="Bank">Banking</a></div><div class="sidebar-list-content mw-collapsible-content"><div class="hlist"> <ul><li><a href="/wiki/Central_bank" title="Central bank">Central bank</a></li> <li><a href="/wiki/Deposit_account" title="Deposit account">Deposit account</a></li> <li><a href="/wiki/Fractional-reserve_banking" title="Fractional-reserve banking">Fractional-reserve</a></li> <li><a href="/wiki/Full-reserve_banking" title="Full-reserve banking">Full-reserve</a></li> <li><a href="/wiki/Investment_banking" title="Investment banking">Investment banking</a></li> <li><a href="/wiki/Loan" title="Loan">Loan</a></li> <li><a href="/wiki/Money_supply" title="Money supply">Money supply</a></li></ul> </div> <ul><li><a href="/wiki/Lists_of_banks" title="Lists of banks">Lists of banks</a></li></ul> <table class="sidebar nomobile nowraplinks" style="background-color: transparent; color: var( --color-base, #202122 ); border-collapse:collapse; border-spacing:0px; border:none; width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><th class="sidebar-heading" style="background:#e9e9ff;font-weight:normal;font-style:italic;;display:block;margin-top:0.15em;"> <a href="/wiki/Bank_regulation" class="mw-redirect" title="Bank regulation">Bank regulation</a></th></tr><tr><td class="sidebar-content" style="padding-top:0.15em;"> <ul><li><a href="/wiki/Banking_license" title="Banking license">Banking license</a></li> <li><a href="/wiki/Basel_Accords" title="Basel Accords">Basel Accords</a></li> <li><a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a></li> <li><a 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width:100%; margin:0px; font-size:100%; clear:none; float:none"><tbody><tr><td class="sidebar-content"> <ul><li><a href="/wiki/International_Financial_Reporting_Standards" title="International Financial Reporting Standards">International Financial Reporting Standards</a></li> <li><a href="/wiki/ISO_31000" title="ISO 31000">ISO 31000</a></li> <li><a href="/wiki/Professional_certification_in_financial_services" title="Professional certification in financial services">Professional certification</a></li> <li><a href="/wiki/Fund_governance" title="Fund governance">Fund governance</a></li></ul></td> </tr></tbody></table></div></div></td> </tr><tr><td class="sidebar-content"> <div class="sidebar-list mw-collapsible mw-collapsed"><div class="sidebar-list-title" style="background:#efefef;;color: var(--color-base)"><a href="/wiki/Economic_history" title="Economic history">Economic history</a></div><div class="sidebar-list-content mw-collapsible-content"> <ul><li><a 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srcset="//upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/24px-Emblem-money.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/32px-Emblem-money.svg.png 2x" data-file-width="48" data-file-height="48" /></a></span> </span><a href="/wiki/Portal:Business_and_Economics" class="mw-redirect" title="Portal:Business and Economics">Business and Economics portal</a></li> <li><span class="nowrap"><span class="noviewer" typeof="mw:File"><span><img alt="icon" src="//upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/16px-Bills_and_coins.svg.png" decoding="async" width="16" height="8" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/24px-Bills_and_coins.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/5/55/Bills_and_coins.svg/32px-Bills_and_coins.svg.png 2x" data-file-width="960" data-file-height="465" /></span></span> </span><a href="/wiki/Portal:Money" title="Portal:Money">Money portal</a></li></ul></td></tr><tr><td class="sidebar-navbar"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374" /><style data-mw-deduplicate="TemplateStyles:r1239400231">.mw-parser-output .navbar{display:inline;font-size:88%;font-weight:normal}.mw-parser-output .navbar-collapse{float:left;text-align:left}.mw-parser-output .navbar-boxtext{word-spacing:0}.mw-parser-output .navbar ul{display:inline-block;white-space:nowrap;line-height:inherit}.mw-parser-output .navbar-brackets::before{margin-right:-0.125em;content:"[ "}.mw-parser-output .navbar-brackets::after{margin-left:-0.125em;content:" ]"}.mw-parser-output .navbar li{word-spacing:-0.125em}.mw-parser-output .navbar a>span,.mw-parser-output .navbar a>abbr{text-decoration:inherit}.mw-parser-output .navbar-mini abbr{font-variant:small-caps;border-bottom:none;text-decoration:none;cursor:inherit}.mw-parser-output .navbar-ct-full{font-size:114%;margin:0 7em}.mw-parser-output .navbar-ct-mini{font-size:114%;margin:0 4em}html.skin-theme-clientpref-night .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}@media(prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}}@media print{.mw-parser-output .navbar{display:none!important}}</style><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Finance_sidebar" title="Template:Finance sidebar"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Finance_sidebar" title="Template talk:Finance sidebar"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Finance_sidebar" title="Special:EditPage/Template:Finance sidebar"><abbr title="Edit this template">e</abbr></a></li></ul></div></td></tr></tbody></table> <p>In <a href="/wiki/Finance" title="Finance">finance</a>, a <b>derivative</b> is a <a href="/wiki/Contract" title="Contract">contract</a> between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements: </p> <ol><li>an item (the "underlier") that can or must be bought or sold,</li> <li>a future act which must occur (such as a sale or purchase of the underlier),</li> <li>a price at which the future transaction must take place, and</li> <li>a future date by which the act (such as a purchase or sale) must take place.<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup></li></ol> <p>A derivative's value depends on the performance of the underlier, which can be a commodity (for example, corn or oil), a financial instrument (e.g. a stock or a bond), <a href="/wiki/Price_index" title="Price index">a price index</a>, a <a href="/wiki/Currency" title="Currency">currency</a>, or an <a href="/wiki/Interest_rate" title="Interest rate">interest rate</a>. <sup id="cite_ref-2" class="reference"><a href="#cite_note-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> </p><p>Derivatives can be used to insure against price movements (<a href="/wiki/Hedge_(finance)#Etymology" title="Hedge (finance)">hedging</a>), increase exposure to price movements for <a href="/wiki/Speculation" title="Speculation">speculation</a>, or get access to otherwise hard-to-trade assets or markets.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup> Most derivatives are price guarantees. But some are based on an event or performance of an act rather than a price. Agriculture, natural gas, electricity and oil businesses use derivatives to mitigate risk from adverse weather.<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-6" class="reference"><a href="#cite_note-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> Derivatives can be used to protect lenders against the risk of borrowers defaulting on an obligation.<sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup> </p><p>Some of the more common derivatives include <a href="/wiki/Forward_contract" title="Forward contract">forwards</a>, <a href="/wiki/Futures_contract" title="Futures contract">futures</a>, <a href="/wiki/Option_(finance)" title="Option (finance)">options</a>, <a href="/wiki/Swap_(finance)" title="Swap (finance)">swaps</a>, and variations of these such as synthetic <a href="/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation">collateralized debt obligations</a> and <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a>. Most derivatives are traded <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">over-the-counter</a> (off-exchange) or on an exchange such as the <a href="/wiki/Chicago_Mercantile_Exchange" title="Chicago Mercantile Exchange">Chicago Mercantile Exchange</a>, while most <a href="/wiki/Insurance" title="Insurance">insurance</a> contracts have developed into a separate industry. In the <a href="/wiki/United_States" title="United States">United States</a>, after the <a href="/wiki/2007%E2%80%932008_financial_crisis" class="mw-redirect" title="2007–2008 financial crisis">2007–2008 financial crisis</a>, there has been increased pressure to move derivatives to trade on exchanges. </p><p>Derivatives are one of the three main categories of financial instruments, the other two being <a href="/wiki/Equity_(finance)" title="Equity (finance)">equity</a> (i.e., stocks or shares) and <a href="/wiki/Debt" title="Debt">debt</a> (i.e., <a href="/wiki/Bond_(finance)" title="Bond (finance)">bonds</a> and <a href="/wiki/Mortgages" class="mw-redirect" title="Mortgages">mortgages</a>). The oldest example of a derivative in history, attested to by <a href="/wiki/Aristotle" title="Aristotle">Aristotle</a>, is thought to be a contract transaction of <a href="/wiki/Olive" title="Olive">olives</a>, entered into by ancient Greek philosopher <a href="/wiki/Thales" class="mw-redirect" title="Thales">Thales</a>, who made a profit in the exchange.<sup id="cite_ref-8" class="reference"><a href="#cite_note-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup> However, Aristotle did not define this arrangement as a derivative but as a monopoly (Aristotle's Politics, Book I, Chapter XI). <a href="/wiki/Bucket_shop_(stock_market)" title="Bucket shop (stock market)">Bucket shops</a>, outlawed <a href="/wiki/Commodity_Exchange_Act" title="Commodity Exchange Act">in 1936</a> in the US, are a more recent historical example. </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="Basics">Basics</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=1" title="Edit section: Basics"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1251242444">.mw-parser-output .ambox{border:1px solid #a2a9b1;border-left:10px solid #36c;background-color:#fbfbfb;box-sizing:border-box}.mw-parser-output .ambox+link+.ambox,.mw-parser-output .ambox+link+style+.ambox,.mw-parser-output .ambox+link+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+style+.ambox,.mw-parser-output .ambox+.mw-empty-elt+link+link+.ambox{margin-top:-1px}html body.mediawiki .mw-parser-output .ambox.mbox-small-left{margin:4px 1em 4px 0;overflow:hidden;width:238px;border-collapse:collapse;font-size:88%;line-height:1.25em}.mw-parser-output .ambox-speedy{border-left:10px solid #b32424;background-color:#fee7e6}.mw-parser-output .ambox-delete{border-left:10px solid #b32424}.mw-parser-output .ambox-content{border-left:10px solid #f28500}.mw-parser-output .ambox-style{border-left:10px solid #fc3}.mw-parser-output .ambox-move{border-left:10px solid #9932cc}.mw-parser-output .ambox-protection{border-left:10px solid #a2a9b1}.mw-parser-output .ambox .mbox-text{border:none;padding:0.25em 0.5em;width:100%}.mw-parser-output .ambox .mbox-image{border:none;padding:2px 0 2px 0.5em;text-align:center}.mw-parser-output .ambox .mbox-imageright{border:none;padding:2px 0.5em 2px 0;text-align:center}.mw-parser-output .ambox .mbox-empty-cell{border:none;padding:0;width:1px}.mw-parser-output .ambox .mbox-image-div{width:52px}@media(min-width:720px){.mw-parser-output .ambox{margin:0 10%}}@media print{body.ns-0 .mw-parser-output .ambox{display:none!important}}</style><table class="box-More_citations_needed plainlinks metadata ambox ambox-content ambox-Refimprove" role="presentation"><tbody><tr><td class="mbox-image"><div class="mbox-image-div"><span typeof="mw:File"><a href="/wiki/File:Question_book-new.svg" class="mw-file-description"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/50px-Question_book-new.svg.png" decoding="async" width="50" height="39" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/75px-Question_book-new.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/100px-Question_book-new.svg.png 2x" data-file-width="512" data-file-height="399" /></a></span></div></td><td class="mbox-text"><div class="mbox-text-span">This section <b>needs additional citations for <a href="/wiki/Wikipedia:Verifiability" title="Wikipedia:Verifiability">verification</a></b>.<span class="hide-when-compact"> Please help <a href="/wiki/Special:EditPage/Derivative_(finance)" title="Special:EditPage/Derivative (finance)">improve this article</a> by <a href="/wiki/Help:Referencing_for_beginners" title="Help:Referencing for beginners">adding citations to reliable sources</a> in this section. Unsourced material may be challenged and removed.<br /><small><span class="plainlinks"><i>Find sources:</i> <a rel="nofollow" class="external text" href="https://www.google.com/search?as_eq=wikipedia&q=%22Derivative%22+finance">"Derivative" finance</a> – <a rel="nofollow" class="external text" href="https://www.google.com/search?tbm=nws&q=%22Derivative%22+finance+-wikipedia&tbs=ar:1">news</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?&q=%22Derivative%22+finance&tbs=bkt:s&tbm=bks">newspapers</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.google.com/search?tbs=bks:1&q=%22Derivative%22+finance+-wikipedia">books</a> <b>·</b> <a rel="nofollow" class="external text" href="https://scholar.google.com/scholar?q=%22Derivative%22+finance">scholar</a> <b>·</b> <a rel="nofollow" class="external text" href="https://www.jstor.org/action/doBasicSearch?Query=%22Derivative%22+finance&acc=on&wc=on">JSTOR</a></span></small></span> <span class="date-container"><i>(<span class="date">July 2023</span>)</i></span><span class="hide-when-compact"><i> (<small><a href="/wiki/Help:Maintenance_template_removal" title="Help:Maintenance template removal">Learn how and when to remove this message</a></small>)</i></span></div></td></tr></tbody></table> <p>Derivatives are contracts between two parties that specify conditions (especially the dates, resulting values and definitions of the underlying variables, the parties' contractual obligations, and the <a href="/wiki/Notional_amount" title="Notional amount">notional amount</a>) under which payments are to be made between the parties.<sup id="cite_ref-hull_9-0" class="reference"><a href="#cite_note-hull-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-10" class="reference"><a href="#cite_note-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup> The <a href="/wiki/Assets" class="mw-redirect" title="Assets">assets</a> include <a href="/wiki/Commodity" title="Commodity">commodities</a>, <a href="/wiki/Stock" title="Stock">stocks</a>, <a href="/wiki/Bond_(finance)" title="Bond (finance)">bonds</a>, <a href="/wiki/Interest_rates" class="mw-redirect" title="Interest rates">interest rates</a> and <a href="/wiki/Currencies" class="mw-redirect" title="Currencies">currencies</a>, but they can also be other derivatives, which adds another layer of complexity to proper valuation. The components of a firm's <a href="/wiki/Capital_structure" title="Capital structure">capital structure</a>, e.g., bonds and stock, can also be considered derivatives, more precisely options, with the underlying being the firm's assets, but this is unusual outside of technical contexts. </p><p>From the economic point of view, financial derivatives are cash flows that are conditioned <a href="/wiki/Stochastic" title="Stochastic">stochastically</a> and discounted to present value. The <a href="/wiki/Market_risk" title="Market risk">market risk</a> inherent in the <a href="/wiki/Underlying_asset" class="mw-redirect" title="Underlying asset">underlying asset</a> is attached to the financial derivative through contractual agreements and hence can be traded separately.<sup id="cite_ref-ssrn.com_11-0" class="reference"><a href="#cite_note-ssrn.com-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> The underlying asset does not have to be acquired. Derivatives therefore allow the breakup of ownership and participation in the <a href="/wiki/Market_value" title="Market value">market value</a> of an asset. This also provides a considerable amount of freedom regarding the contract design. That contractual freedom allows derivative designers to modify the participation in the performance of the underlying asset almost arbitrarily. Thus, the participation in the market value of the underlying can be effectively weaker, stronger (leverage effect), or implemented as inverse. Hence, specifically the market price risk of the underlying asset can be controlled in almost every situation.<sup id="cite_ref-ssrn.com_11-1" class="reference"><a href="#cite_note-ssrn.com-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> </p><p>There are two groups of derivative contracts: the privately traded <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">over-the-counter</a> (OTC) derivatives such as <a href="/wiki/Swap_(finance)" title="Swap (finance)">swaps</a> that do not go through an exchange or other intermediary, and <a href="/wiki/Exchange-traded_derivative_contract" title="Exchange-traded derivative contract">exchange-traded derivatives</a> (ETD) that are traded through specialized <a href="/wiki/Derivatives_exchange" class="mw-redirect" title="Derivatives exchange">derivatives exchanges</a> or other exchanges. </p><p>Derivatives are more common in the modern era, but their origins trace back several centuries. One of the oldest derivatives is rice futures, which have been traded on the <a href="/wiki/Dojima_Rice_Exchange" class="mw-redirect" title="Dojima Rice Exchange">Dojima Rice Exchange</a> since the eighteenth century.<sup id="cite_ref-Rice_FT_12-0" class="reference"><a href="#cite_note-Rice_FT-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup> Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (such as <a href="/wiki/Forward_contract" title="Forward contract">forward</a>, <a href="/wiki/Option_(finance)" title="Option (finance)">option</a>, <a href="/wiki/Swap_(finance)" title="Swap (finance)">swap</a>); the type of underlying asset (such as <a href="/wiki/Equity_derivative" title="Equity derivative">equity derivatives</a>, <a href="/wiki/Foreign_exchange_derivative" title="Foreign exchange derivative">foreign exchange derivatives</a>, <a href="/wiki/Interest_rate_derivative" title="Interest rate derivative">interest rate derivatives</a>, <a href="/wiki/Commodity_derivative" class="mw-redirect" title="Commodity derivative">commodity derivatives</a>, or <a href="/wiki/Credit_derivative" title="Credit derivative">credit derivatives</a>); the market in which they trade (such as exchange-traded or <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">over-the-counter</a>); and their pay-off profile. </p><p>Derivatives may broadly be categorized as "lock" or "option" products. Lock products (such as <a href="/wiki/Swap_(finance)" title="Swap (finance)">swaps</a>, <a href="/wiki/Futures_contract" title="Futures contract">futures</a>, or <a href="/wiki/Forward_contract" title="Forward contract">forwards</a>) obligate the contractual parties to the terms over the life of the contract. <a href="/wiki/Option_(finance)" title="Option (finance)">Option</a> products (such as <a href="/wiki/Interest_rate_swaps" class="mw-redirect" title="Interest rate swaps">interest rate swaps</a>) provide the buyer the right, but not the obligation to enter the contract under the terms specified. </p><p>Derivatives can be used either for risk management (i.e. to "<a href="/wiki/Hedge_(finance)" title="Hedge (finance)">hedge</a>" by providing offsetting compensation in case of an undesired event, a kind of "insurance") or for speculation (i.e. making a financial "bet"). This distinction is important because the former is a prudent aspect of operations and financial management for many firms across many industries; the latter offers managers and investors a risky opportunity to increase profit, which may not be properly disclosed to stakeholders. </p><p>Along with many other financial products and services, derivatives reform is an element of the <a href="/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act" title="Dodd–Frank Wall Street Reform and Consumer Protection Act">Dodd–Frank Wall Street Reform and Consumer Protection Act</a> of 2010. The Act delegated many rule-making details of regulatory oversight to the <a href="/wiki/Commodity_Futures_Trading_Commission" title="Commodity Futures Trading Commission">Commodity Futures Trading Commission</a> (CFTC) and those details are not finalized nor fully implemented as of late 2012. </p> <div class="mw-heading mw-heading2"><h2 id="Size_of_market">Size of market</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=2" title="Edit section: Size of market"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>To give an idea of the size of the derivative market, <i><a href="/wiki/The_Economist" title="The Economist">The Economist</a></i> has reported that as of June 2011, the over-the-counter (OTC) derivatives market amounted to approximately $700 trillion, and the size of the market traded on exchanges totaled an additional $83 trillion.<sup id="cite_ref-13" class="reference"><a href="#cite_note-13"><span class="cite-bracket">[</span>13<span class="cite-bracket">]</span></a></sup> For the fourth quarter 2017 the <a href="/wiki/European_Securities_and_Markets_Authority" title="European Securities and Markets Authority">European Securities Market Authority</a> estimated the size of European <a href="/wiki/Derivatives_market" title="Derivatives market">derivatives market</a> at a size of €660 trillion with 74 million outstanding contracts.<sup id="cite_ref-14" class="reference"><a href="#cite_note-14"><span class="cite-bracket">[</span>14<span class="cite-bracket">]</span></a></sup> </p><p>However, these are "notional" values, and some economists say that these aggregated values greatly exaggerate the market value and the true credit risk faced by the parties involved. For example, in 2010, while the aggregate of OTC derivatives exceeded $600 trillion, the value of the market was estimated to be much lower, at $21 trillion. The credit-risk equivalent of the derivative contracts was estimated at $3.3 trillion.<sup id="cite_ref-15" class="reference"><a href="#cite_note-15"><span class="cite-bracket">[</span>15<span class="cite-bracket">]</span></a></sup> </p><p>Still, even these scaled-down figures represent huge amounts of money. For perspective, the budget for total expenditure of the United States government during 2012 was $3.5 trillion,<sup id="cite_ref-2012actual_16-0" class="reference"><a href="#cite_note-2012actual-16"><span class="cite-bracket">[</span>16<span class="cite-bracket">]</span></a></sup> and the total current value of the U.S. stock market is an estimated $23 trillion.<sup id="cite_ref-17" class="reference"><a href="#cite_note-17"><span class="cite-bracket">[</span>17<span class="cite-bracket">]</span></a></sup> Meanwhile, the global annual Gross Domestic Product is about $65 trillion.<sup id="cite_ref-18" class="reference"><a href="#cite_note-18"><span class="cite-bracket">[</span>18<span class="cite-bracket">]</span></a></sup> </p><p>At least for one type of derivative, <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a> (CDS), for which the inherent risk is considered high <sup class="noprint Inline-Template" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Manual_of_Style/Words_to_watch#Unsupported_attributions" title="Wikipedia:Manual of Style/Words to watch"><span title="The material near this tag may use weasel words or too-vague attribution. (August 2017)">by whom?</span></a></i>]</sup>, the higher, nominal value remains relevant. It was this type of derivative that investment magnate <a href="/wiki/Warren_Buffett" title="Warren Buffett">Warren Buffett</a> referred to in his famous 2002 speech in which he warned against "financial weapons of mass destruction".<sup id="cite_ref-19" class="reference"><a href="#cite_note-19"><span class="cite-bracket">[</span>19<span class="cite-bracket">]</span></a></sup> CDS notional value in early 2012 amounted to $25.5 trillion, down from $55 trillion in 2008.<sup id="cite_ref-20" class="reference"><a href="#cite_note-20"><span class="cite-bracket">[</span>20<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Usage">Usage</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=3" title="Edit section: Usage"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Derivatives are used for the following: </p> <ul><li><a href="/wiki/Hedge_(finance)" title="Hedge (finance)">Hedge</a> or to mitigate risk in the underlying, by entering into a derivative <a href="/wiki/Contract" title="Contract">contract</a> whose value moves in the opposite direction to their underlying position and cancels part or all of it out<sup id="cite_ref-21" class="reference"><a href="#cite_note-21"><span class="cite-bracket">[</span>21<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-22" class="reference"><a href="#cite_note-22"><span class="cite-bracket">[</span>22<span class="cite-bracket">]</span></a></sup></li> <li>Create <a href="/wiki/Option_(finance)" title="Option (finance)">option</a> ability where the value of the derivative is linked to a specific condition or event (e.g., the underlying reaching a specific price level)</li> <li>Obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., <a href="/wiki/Weather_derivative" title="Weather derivative">weather derivatives</a>)<sup id="cite_ref-23" class="reference"><a href="#cite_note-23"><span class="cite-bracket">[</span>23<span class="cite-bracket">]</span></a></sup></li> <li>Provide <a href="/wiki/Leverage_(finance)" title="Leverage (finance)">leverage</a> (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative<sup id="cite_ref-24" class="reference"><a href="#cite_note-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup></li> <li><a href="/wiki/Speculation" title="Speculation">Speculate</a> and make a profit if the value of the underlying asset moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level)</li> <li>Switch <a href="/wiki/Asset_allocation" title="Asset allocation">asset allocations</a> between different <a href="/wiki/Asset_classes" title="Asset classes">asset classes</a> without disturbing the underlying assets, as part of <a href="/wiki/Transition_management" title="Transition management">transition management</a></li> <li>Avoid paying taxes. For example, an <a href="/wiki/Equity_swap" title="Equity swap">equity swap</a> allows an investor to receive steady payments, e.g. based on <a href="/wiki/SONIA" class="mw-redirect" title="SONIA">SONIA</a> rate, while avoiding paying <a href="/wiki/Capital_gains_tax" title="Capital gains tax">capital gains tax</a> and keeping the stock.</li> <li>For <a href="/wiki/Arbitrage" title="Arbitrage">arbitraging</a> purpose, allowing a riskless profit by simultaneously entering into transactions into two or more markets.<sup id="cite_ref-25" class="reference"><a href="#cite_note-25"><span class="cite-bracket">[</span>25<span class="cite-bracket">]</span></a></sup></li></ul> <div class="mw-heading mw-heading3"><h3 id="Mechanics_and_valuation">Mechanics and valuation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=4" title="Edit section: Mechanics and valuation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1251242444" /><table class="box-Unreferenced_section plainlinks metadata ambox ambox-content ambox-Unreferenced" role="presentation"><tbody><tr><td class="mbox-image"><div class="mbox-image-div"><span typeof="mw:File"><a href="/wiki/File:Question_book-new.svg" class="mw-file-description"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/50px-Question_book-new.svg.png" decoding="async" width="50" height="39" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/75px-Question_book-new.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/9/99/Question_book-new.svg/100px-Question_book-new.svg.png 2x" data-file-width="512" data-file-height="399" /></a></span></div></td><td class="mbox-text"><div class="mbox-text-span">This section <b>does not <a href="/wiki/Wikipedia:Citing_sources" title="Wikipedia:Citing sources">cite</a> any <a href="/wiki/Wikipedia:Verifiability" title="Wikipedia:Verifiability">sources</a></b>.<span class="hide-when-compact"> Please help <a href="/wiki/Special:EditPage/Derivative_(finance)" title="Special:EditPage/Derivative (finance)">improve this section</a> by <a href="/wiki/Help:Referencing_for_beginners" title="Help:Referencing for beginners">adding citations to reliable sources</a>. Unsourced material may be challenged and <a href="/wiki/Wikipedia:Verifiability#Burden_of_evidence" title="Wikipedia:Verifiability">removed</a>.</span> <span class="date-container"><i>(<span class="date">October 2016</span>)</i></span><span class="hide-when-compact"><i> (<small><a href="/wiki/Help:Maintenance_template_removal" title="Help:Maintenance template removal">Learn how and when to remove this message</a></small>)</i></span></div></td></tr></tbody></table> <p>Lock products are theoretically valued at zero at the time of execution and thus do not typically require an up-front exchange between the parties. Based upon movements in the underlying asset over time, however, the value of the contract will fluctuate, and the derivative may be either an asset (i.e., "<a href="/wiki/In_the_money" class="mw-redirect" title="In the money">in the money</a>") or a liability (i.e., "<a href="/wiki/Out_of_the_money" class="mw-redirect" title="Out of the money">out of the money</a>") at different points throughout its life. Importantly, either party is therefore exposed to the credit quality of its <a href="/wiki/Counterparty" title="Counterparty">counterparty</a> and is interested in protecting itself in an <a href="/wiki/Event_of_default" title="Event of default">event of default</a>. </p><p>Option products have immediate value at the outset because they provide specified protection (<a href="/wiki/Intrinsic_value_(finance)" title="Intrinsic value (finance)">intrinsic value</a>) over a given time period (<a href="/wiki/Option_time_value" title="Option time value">time value</a>). One common form of option product familiar to many consumers is insurance for homes and automobiles. The insured would pay more for a policy with greater liability protections (intrinsic value) and one that extends for a year rather than six months (time value). Because of the immediate option value, the option purchaser typically pays an up front premium. Just like for lock products, movements in the underlying asset will cause the option's intrinsic value to change over time while its time value deteriorates steadily until the contract expires. An important difference between a lock product is that, after the initial exchange, the option purchaser has no further liability to its counterparty; upon maturity, the purchaser will execute the option if it has positive value (i.e., if it is "in the money") or expire at no cost (other than to the initial premium) (i.e., if the option is "out of the money"). </p> <div class="mw-heading mw-heading3"><h3 id="Hedging">Hedging</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=5" title="Edit section: Hedging"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951" /><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Hedge_(finance)" title="Hedge (finance)">Hedge (finance)</a></div> <p>Derivatives allow risk related to the price of the underlying asset to be transferred from one party to another. For example, a <a href="/wiki/Wheat" title="Wheat">wheat</a> farmer and a <a href="/wiki/Miller" title="Miller">miller</a> could sign a <a href="/wiki/Futures_contract" title="Futures contract">futures contract</a> to exchange a specified amount of cash for a specified amount of wheat in the future. Both parties have reduced a future risk: for the wheat farmer, the uncertainty of the price, and for the miller, the availability of wheat. However, there is still the risk that no wheat will be available because of events unspecified by the contract, such as the weather, or that one party will <a href="/wiki/Revocation" title="Revocation">renege</a> on the contract. Although a third party, called a <a href="/wiki/Clearing_house_(finance)" title="Clearing house (finance)">clearing house</a>, insures a futures contract, not all derivatives are insured against counter-party risk. </p><p>From another perspective, the farmer and the miller both reduce a risk and acquire a risk when they sign the futures contract: the farmer reduces the risk that the price of wheat will fall below the price specified in the contract and acquires the risk that the price of wheat will rise above the price specified in the contract (thereby losing additional income that he could have earned). The miller, on the other hand, acquires the risk that the price of wheat will fall below the price specified in the contract (thereby paying more in the future than he otherwise would have) and reduces the risk that the price of wheat will rise above the price specified in the contract. In this sense, one party is the insurer (risk taker) for one type of risk, and the counter-party is the insurer (risk taker) for another type of risk. </p><p>Hedging also occurs when an individual or institution buys an asset (such as a commodity, a bond that has <a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon payments</a>, a stock that pays dividends, and so on) and sells it using a futures contract. The individual or institution has access to the asset for a specified amount of time, and can then sell it in the future at a specified price according to the futures contract. Of course, this allows the individual or institution the benefit of holding the asset, while reducing the risk that the future selling price will deviate unexpectedly from the market's current assessment of the future value of the asset. </p> <figure class="mw-halign-right" typeof="mw:File/Thumb"><a href="/wiki/File:Chicago_bot.jpg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/0/0e/Chicago_bot.jpg/250px-Chicago_bot.jpg" decoding="async" width="250" height="183" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/0/0e/Chicago_bot.jpg/375px-Chicago_bot.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/0/0e/Chicago_bot.jpg/500px-Chicago_bot.jpg 2x" data-file-width="600" data-file-height="439" /></a><figcaption>Derivatives traders in the <a href="/wiki/Pit_trading" class="mw-redirect" title="Pit trading">pit</a> at the <a href="/wiki/Chicago_Board_of_Trade" title="Chicago Board of Trade">Chicago Board of Trade</a> in 1993</figcaption></figure> <p>Derivatives trading of this kind may serve the financial interests of certain particular businesses.<sup id="cite_ref-26" class="reference"><a href="#cite_note-26"><span class="cite-bracket">[</span>26<span class="cite-bracket">]</span></a></sup> For example, a corporation borrows a large sum of money at a specific interest rate.<sup id="cite_ref-27" class="reference"><a href="#cite_note-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup> The interest rate on the loan reprices every six months. The corporation is concerned that the rate of interest may be much higher in six months. The corporation could buy a <a href="/wiki/Forward_rate_agreement" title="Forward rate agreement">forward rate agreement</a> (FRA), which is a contract to pay a fixed rate of interest six months after purchases on a <a href="/wiki/Notional_amount" title="Notional amount">notional amount</a> of money.<sup id="cite_ref-28" class="reference"><a href="#cite_note-28"><span class="cite-bracket">[</span>28<span class="cite-bracket">]</span></a></sup> If the interest rate after six months is above the contract rate, the seller will pay the difference to the corporation, or FRA buyer. If the rate is lower, the corporation will pay the difference to the seller. The purchase of the FRA serves to reduce the uncertainty concerning the rate increase and stabilize earnings. </p> <div class="mw-heading mw-heading3"><h3 id="Speculation">Speculation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=6" title="Edit section: Speculation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Derivatives can be used to acquire risk, rather than to hedge against risk. Thus, some individuals and institutions will enter into a derivative contract to <a href="/wiki/Speculation" title="Speculation">speculate</a> on the value of the underlying asset. Speculators look to buy an asset in the future at a low price according to a derivative contract when the future market price is high, or to sell an asset in the future at a high price according to a derivative contract when the future market price is less. </p><p>Speculative trading in derivatives gained a great deal of notoriety in 1995 when <a href="/wiki/Nick_Leeson" title="Nick Leeson">Nick Leeson</a>, a trader at <a href="/wiki/Barings_Bank" title="Barings Bank">Barings Bank</a>, made poor and unauthorized investments in futures contracts. Through a combination of poor judgment, lack of oversight by the bank's management and regulators, and unfortunate events like the <a href="/wiki/Kobe_earthquake" class="mw-redirect" title="Kobe earthquake">Kobe earthquake</a>, Leeson incurred a $1.3 billion loss that <a href="/wiki/Bankruptcy" title="Bankruptcy">bankrupted</a> the centuries-old institution.<sup id="cite_ref-lee_29-0" class="reference"><a href="#cite_note-lee-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Arbitrage">Arbitrage</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=7" title="Edit section: Arbitrage"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Individuals and institutions may also look for <a href="/wiki/Arbitrage" title="Arbitrage">arbitrage</a> opportunities, as when the current buying price of an asset falls below the price specified in a futures contract to sell the asset. </p> <div class="mw-heading mw-heading3"><h3 id="Proportion_used_for_hedging_and_speculation">Proportion used for hedging and speculation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=8" title="Edit section: Proportion used for hedging and speculation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The true proportion of derivatives contracts used for hedging purposes is unknown,<sup id="cite_ref-30" class="reference"><a href="#cite_note-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup> but it appears to be relatively small.<sup id="cite_ref-31" class="reference"><a href="#cite_note-31"><span class="cite-bracket">[</span>31<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-32" class="reference"><a href="#cite_note-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup> Also, derivatives contracts account for only 3–6% of the median firms' total currency and interest rate exposure.<sup id="cite_ref-knowledge.wharton.upenn.edu_33-0" class="reference"><a href="#cite_note-knowledge.wharton.upenn.edu-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> Nonetheless, we know that many firms' derivatives activities have at least some speculative component for a variety of reasons.<sup id="cite_ref-knowledge.wharton.upenn.edu_33-1" class="reference"><a href="#cite_note-knowledge.wharton.upenn.edu-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Types">Types</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=9" title="Edit section: Types"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In broad terms, there are two groups of derivative contracts, which are distinguished by the way they are traded in the market: </p> <div class="mw-heading mw-heading3"><h3 id="Over-the-counter_derivatives">Over-the-counter derivatives</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=10" title="Edit section: Over-the-counter derivatives"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p><a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">Over-the-counter</a> (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as <a href="/wiki/Swap_(finance)" title="Swap (finance)">swaps</a>, <a href="/wiki/Forward_rate_agreement" title="Forward rate agreement">forward rate agreements</a>, <a href="/wiki/Exotic_option" title="Exotic option">exotic options</a> – and other <a href="/wiki/Exotic_derivative" title="Exotic derivative">exotic derivatives</a> – are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as <a href="/wiki/Hedge_fund" title="Hedge fund">hedge funds</a>. Reporting of OTC amounts is difficult because trades can occur in private, without activity being visible on any exchanges </p><p>According to the <a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a>, who first surveyed OTC derivatives in 1995,<sup id="cite_ref-BIS2007_34-0" class="reference"><a href="#cite_note-BIS2007-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup> reported that the "<a href="/w/index.php?title=Gross_market_value&action=edit&redlink=1" class="new" title="Gross market value (page does not exist)">gross market value</a>, which represent the cost of replacing all open contracts at the prevailing market prices, ... increased by 74% since 2004, to $11 trillion at the end of June 2007 (BIS 2007:24)."<sup id="cite_ref-BIS2007_34-1" class="reference"><a href="#cite_note-BIS2007-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup> <a href="/wiki/Position_(finance)" title="Position (finance)">Positions</a> in the OTC derivatives market increased to $516 trillion at the end of June 2007, 135% higher than the level recorded in 2004. The total outstanding notional amount is US$708 trillion (as of June 2011).<sup id="cite_ref-afgh_35-0" class="reference"><a href="#cite_note-afgh-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup> Of this total notional amount, 67% are <a href="/wiki/Interest_rate_derivative" title="Interest rate derivative">interest rate contracts</a>, 8% are <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps (CDS)</a>, 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. Because OTC derivatives are not traded on an exchange, there is no central counter-party. Therefore, they are subject to <a href="/wiki/Credit_risk#Counterparty_risk" title="Credit risk">counterparty risk</a>, like an ordinary <a href="/wiki/Contract" title="Contract">contract</a>, since each counter-party relies on the other to perform. </p> <div class="mw-heading mw-heading3"><h3 id="Exchange-traded_derivatives">Exchange-traded derivatives</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=11" title="Edit section: Exchange-traded derivatives"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p><a href="/wiki/Exchange-traded_derivative_contract" title="Exchange-traded derivative contract">Exchange-traded derivatives</a> (ETD) are those derivatives instruments that are traded via specialized <a href="/wiki/Derivatives_exchange" class="mw-redirect" title="Derivatives exchange">derivatives exchanges</a> or other exchanges. A derivatives exchange is a market where individuals trade standardized contracts that have been defined by the exchange.<sup id="cite_ref-hull_9-1" class="reference"><a href="#cite_note-hull-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup> A derivatives exchange acts as an intermediary to all related transactions, and takes <a href="/wiki/Initial_margin" class="mw-redirect" title="Initial margin">initial margin</a> from both sides of the trade to act as a guarantee. The world's largest<sup id="cite_ref-foweek_36-0" class="reference"><a href="#cite_note-foweek-36"><span class="cite-bracket">[</span>36<span class="cite-bracket">]</span></a></sup> derivatives exchanges (by number of transactions) are the <a href="/wiki/Korea_Exchange" title="Korea Exchange">Korea Exchange</a> (which lists <a href="/wiki/KOSPI" title="KOSPI">KOSPI</a> Index Futures & Options), <a href="/wiki/Eurex" title="Eurex">Eurex</a> (which lists a wide range of European products such as interest rate & index products), and <a href="/wiki/CME_Group" title="CME Group">CME Group</a> (made up of the 2007 merger of the <a href="/wiki/Chicago_Mercantile_Exchange" title="Chicago Mercantile Exchange">Chicago Mercantile Exchange</a> and the <a href="/wiki/Chicago_Board_of_Trade" title="Chicago Board of Trade">Chicago Board of Trade</a> and the 2008 acquisition of the <a href="/wiki/New_York_Mercantile_Exchange" title="New York Mercantile Exchange">New York Mercantile Exchange</a>). According to BIS, the combined turnover in the world's derivatives exchanges totaled US$344 trillion during Q4 2005. By December 2007 the <a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a> reported<sup id="cite_ref-BIS2007_34-2" class="reference"><a href="#cite_note-BIS2007-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup> that "derivatives traded on exchanges surged 27% to a record $681 trillion."<sup id="cite_ref-BIS2007_34-3" class="reference"><a href="#cite_note-BIS2007-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup><sup class="reference nowrap"><span title="Page / location: 22">: 22 </span></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Inverse_ETFs_and_leveraged_ETFs">Inverse ETFs and leveraged ETFs</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=12" title="Edit section: Inverse ETFs and leveraged ETFs"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951" /><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Exchange-traded_fund" title="Exchange-traded fund">Exchange-traded fund</a></div> <p><a href="/wiki/Inverse_exchange-traded_fund" title="Inverse exchange-traded fund">Inverse exchange-traded funds (IETFs)</a> and <a href="/wiki/Exchange-traded_fund#Leveraged_ETFs" title="Exchange-traded fund">leveraged exchange-traded funds (LETFs)</a><sup id="cite_ref-37" class="reference"><a href="#cite_note-37"><span class="cite-bracket">[</span>37<span class="cite-bracket">]</span></a></sup> are two special types of exchange traded funds (ETFs) that are available to common traders and investors on major exchanges like the NYSE and Nasdaq. To maintain these products' <a href="/wiki/Net_asset_value" title="Net asset value">net asset value</a>, these funds' administrators must employ more sophisticated <a href="/wiki/Financial_engineering" title="Financial engineering">financial engineering</a> methods than what's usually required for maintenance of traditional ETFs. These instruments must also be regularly <a href="/wiki/Rebalancing" class="mw-redirect" title="Rebalancing">rebalanced</a> and re-indexed each day. </p> <div class="mw-heading mw-heading3"><h3 id="Common_derivative_contract">Common derivative contract</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=13" title="Edit section: Common derivative contract"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Some of the common variants of derivative contracts are as follows: </p> <ol><li><a href="/wiki/Forward_contract" title="Forward contract">Forwards</a>: tailored contract between two parties, where payment takes place at a specific time in the future at today's pre-determined price.</li> <li><a href="/wiki/Futures_contract" title="Futures contract">Futures</a>: contracts to buy or sell an asset on a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a <a href="/wiki/Clearing_house_(finance)" title="Clearing house (finance)">clearing house</a> that operates an exchange where the contract can be bought and sold; the forward contract is a non-standardized contract written by the parties themselves.</li> <li><a href="/wiki/Option_(finance)" title="Option (finance)">Options</a>: contracts that give the owner the right, but not the obligation, to buy (in the case of a <a href="/wiki/Call_option" title="Call option">call option</a>) or sell (in the case of a <a href="/wiki/Put_option" title="Put option">put option</a>) an asset. The price at which the sale takes place is known as the <a href="/wiki/Strike_price" title="Strike price">strike price</a>, and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. In the case of a <a href="/wiki/European_option" class="mw-redirect" title="European option">European option</a>, the owner has the right to require the sale to take place on (but not before) the maturity date; in the case of an <a href="/wiki/American_option" class="mw-redirect" title="American option">American option</a>, the owner can require the sale to take place at any time up to the maturity date. If the owner of the contract exercises this right, the counter-party has the obligation to carry out the transaction. Options are of two types: <a href="/wiki/Call_option" title="Call option">call option</a> and <a href="/wiki/Put_option" title="Put option">put option</a>.</li> <li><a href="/wiki/Binary_option" title="Binary option">Binary options</a>: contracts that provide the owner with an all-or-nothing profit profile.</li> <li><a href="/wiki/Warrant_(finance)" title="Warrant (finance)">Warrants</a>: apart from the commonly used short-dated options which have a maximum maturity period of one year, there exist certain long-dated options as well, known as <a href="/wiki/Warrant_(finance)" title="Warrant (finance)">warrants</a>. These are generally traded over the counter.</li> <li><a href="/wiki/Swap_(finance)" title="Swap (finance)">Swaps</a>: contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies exchange rates, bonds/interest rates, <a href="/wiki/Commodities_exchange" class="mw-redirect" title="Commodities exchange">commodities exchange</a>, stocks or other assets.</li></ol> <dl><dd><dl><dd>Swaps can basically be categorized into <a href="/wiki/Interest_rate_swap" title="Interest rate swap">Interest rate swap</a> and <a href="/wiki/Currency_swap" title="Currency swap">Currency swap</a>.<sup id="cite_ref-38" class="reference"><a href="#cite_note-38"><span class="cite-bracket">[</span>38<span class="cite-bracket">]</span></a></sup></dd></dl></dd></dl> <p>Some common examples of these derivatives are the following: </p> <table class="wikitable"> <tbody><tr> <th rowspan="2">UNDERLYING </th> <th colspan="5">CONTRACT TYPES </th></tr> <tr> <th>Exchange-traded futures </th> <th>Exchange-traded options </th> <th>OTC swap </th> <th>OTC forward </th> <th>OTC option </th></tr> <tr> <th>Equity </th> <td><a href="/wiki/Dow_Jones_Industrial_Average" title="Dow Jones Industrial Average">DJIA</a> Index future <br /> <a href="/wiki/Single-stock_futures" title="Single-stock futures">Single-stock future</a> </td> <td>Option on <a href="/wiki/Dow_Jones_Industrial_Average" title="Dow Jones Industrial Average">DJIA</a> Index future <br /> Single-share option </td> <td><a href="/wiki/Equity_swap" title="Equity swap">Equity swap</a> </td> <td>Back-to-back <br /> <a href="/wiki/Repurchase_agreement" title="Repurchase agreement">Repurchase agreement</a> </td> <td><a href="/wiki/Stock_option" class="mw-redirect" title="Stock option">Stock option</a><br /><a href="/wiki/Warrant_(finance)" title="Warrant (finance)">Warrant</a><br /><a href="/wiki/Turbo_warrant" title="Turbo warrant">Turbo warrant</a> </td></tr> <tr> <th>Interest rate </th> <td>Eurodollar future <br /> Euribor future </td> <td>Option on Eurodollar future <br /> Option on Euribor future </td> <td><a href="/wiki/Interest_rate_swap" title="Interest rate swap">Interest rate swap</a> </td> <td><a href="/wiki/Forward_rate_agreement" title="Forward rate agreement">Forward rate agreement</a> </td> <td><a href="/wiki/Interest_rate_cap_and_floor" title="Interest rate cap and floor">Interest rate cap and floor</a> <br /> <a href="/wiki/Swaption" title="Swaption">Swaption</a> <br /> <a href="/wiki/Basis_swap" title="Basis swap">Basis swap</a> <br /> <a href="/wiki/Bond_option" title="Bond option">Bond option</a> </td></tr> <tr> <th>Credit </th> <td>Bond future </td> <td>Option on Bond future </td> <td><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default swap</a> <br /> <a href="/wiki/Total_return_swap" title="Total return swap">Total return swap</a> </td> <td><a href="/wiki/Repurchase_agreement" title="Repurchase agreement">Repurchase agreement</a> </td> <td><a href="/wiki/Credit_default_option" title="Credit default option">Credit default option</a> </td></tr> <tr> <th>Foreign exchange </th> <td><a href="/wiki/Currency_future" title="Currency future">Currency future</a> </td> <td>Option on currency future </td> <td><a href="/wiki/Currency_swap" title="Currency swap">Currency swap</a> </td> <td><a href="/wiki/Currency_forward" class="mw-redirect" title="Currency forward">Currency forward</a> </td> <td><a href="/wiki/Currency_option" class="mw-redirect" title="Currency option">Currency option</a> </td></tr> <tr> <th>Commodity </th> <td><a href="/wiki/West_Texas_Intermediate" title="West Texas Intermediate">WTI</a> crude oil futures </td> <td><a href="/wiki/Weather_derivative" title="Weather derivative">Weather derivative</a> </td> <td><a href="/wiki/Commodity_swap" title="Commodity swap">Commodity swap</a> </td> <td>Iron ore forward contract </td> <td><a href="/wiki/Gold_as_an_investment#Derivatives,_CFDs_and_spread_betting" title="Gold as an investment">Gold option</a> </td></tr></tbody></table> <div class="mw-heading mw-heading3"><h3 id="Collateralized_debt_obligation">Collateralized debt obligation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=14" title="Edit section: Collateralized debt obligation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>A <b><a href="/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation">collateralized debt obligation</a></b> (<a href="/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation">CDO</a>) is a type of <a href="/wiki/Structured_finance" title="Structured finance">structured</a> <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed security (ABS)</a>. An "asset-backed security" is used as an umbrella term for a type of security backed by a pool of assets – including collateralized debt obligations and <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities (MBS)</a> (Example: "The capital market in which asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs".<sup id="cite_ref-39" class="reference"><a href="#cite_note-39"><span class="cite-bracket">[</span>39<span class="cite-bracket">]</span></a></sup>) – and sometimes for a particular type of that security – one backed by consumer loans (example: "As a rule of thumb, securitization issues backed by mortgages are called MBS, and securitization issues backed by debt obligations are called CDO, [and] <a href="/wiki/Securitization" title="Securitization">Securitization</a> issues backed by consumer-backed products – car loans, consumer loans and credit cards, among others – are called ABS.) <sup id="cite_ref-40" class="reference"><a href="#cite_note-40"><span class="cite-bracket">[</span>40<span class="cite-bracket">]</span></a></sup> Originally developed for the corporate debt markets, over time CDOs evolved to encompass the mortgage and mortgage-backed security (MBS) markets.<sup id="cite_ref-Lemke_2013_41-0" class="reference"><a href="#cite_note-Lemke_2013-41"><span class="cite-bracket">[</span>41<span class="cite-bracket">]</span></a></sup> </p><p>Like other private-label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. The CDO is "sliced" into <a href="/wiki/Tranche" title="Tranche">"tranches"</a>, which "catch" the cash flow of interest and principal payments in sequence based on seniority.<sup id="cite_ref-42" class="reference"><a href="#cite_note-42"><span class="cite-bracket">[</span>42<span class="cite-bracket">]</span></a></sup> If some loans default and the cash collected by the CDO is insufficient to pay all of its investors, those in the lowest, most "junior" tranches suffer losses first. The last to lose payment from default are the safest, most senior tranches. Consequently, <a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon</a> payments (and interest rates) vary by tranche with the safest/most senior tranches paying the lowest and the lowest tranches paying the highest rates to compensate for higher <a href="/wiki/Default_risk" class="mw-redirect" title="Default risk">default risk</a>. As an example, a CDO might issue the following tranches in order of safeness: Senior AAA (sometimes known as "super senior"); Junior AAA; AA; A; BBB; Residual.<sup id="cite_ref-Lemke_2014_43-0" class="reference"><a href="#cite_note-Lemke_2014-43"><span class="cite-bracket">[</span>43<span class="cite-bracket">]</span></a></sup> </p><p>Separate <a href="/wiki/Special-purpose_entity" title="Special-purpose entity">special-purpose entities</a> – rather than the parent <a href="/wiki/Investment_bank" class="mw-redirect" title="Investment bank">investment bank</a> – issue the CDOs and pay interest to investors. As CDOs developed, some sponsors repackaged tranches into yet another iteration called "<a href="/wiki/CDO-Squared" title="CDO-Squared">CDO-Squared</a>" or the "CDOs of CDOs".<sup id="cite_ref-Lemke_2014_43-1" class="reference"><a href="#cite_note-Lemke_2014-43"><span class="cite-bracket">[</span>43<span class="cite-bracket">]</span></a></sup> In the early 2000s, CDOs were generally diversified,<sup id="cite_ref-44" class="reference"><a href="#cite_note-44"><span class="cite-bracket">[</span>44<span class="cite-bracket">]</span></a></sup> but by 2006–2007 – when the CDO market grew to hundreds of billions of dollars – this changed. CDO collateral became dominated not by loans, but by lower level (<a href="/wiki/Credit_ratings#Corporate_credit_ratings" class="mw-redirect" title="Credit ratings">BBB or A</a>) tranches recycled from other asset-backed securities, whose assets were usually non-prime mortgages.<sup id="cite_ref-FCIR-p127_45-0" class="reference"><a href="#cite_note-FCIR-p127-45"><span class="cite-bracket">[</span>45<span class="cite-bracket">]</span></a></sup> These CDOs have been called "the engine that powered the mortgage supply chain" for nonprime mortgages,<sup id="cite_ref-FCIR-130_46-0" class="reference"><a href="#cite_note-FCIR-130-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup> and are credited with giving lenders greater incentive to make non-prime loans<sup id="cite_ref-FCIR-133_47-0" class="reference"><a href="#cite_note-FCIR-133-47"><span class="cite-bracket">[</span>47<span class="cite-bracket">]</span></a></sup> leading up to the 2007–09 <a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">subprime mortgage crisis</a>. </p> <div class="mw-heading mw-heading3"><h3 id="Credit_default_swap">Credit default swap</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=15" title="Edit section: Credit default swap"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>A <a href="/wiki/Credit_default_swap" title="Credit default swap"><b>credit default swap</b> (<b>CDS</b>)</a> is a <a href="/wiki/Swap_(finance)" title="Swap (finance)">financial swap</a> agreement that the seller of the CDS will compensate the buyer (the creditor of the reference loan) in the event of a loan <a href="/wiki/Default_(finance)" title="Default (finance)">default</a> (by the debtor) or other <a href="/wiki/Credit_event" title="Credit event">credit event</a>. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, receives a payoff if the loan defaults. It was invented by <a href="/wiki/Blythe_Masters" title="Blythe Masters">Blythe Masters</a> from <a href="/wiki/J.P._Morgan_%26_Co." title="J.P. Morgan & Co.">JP Morgan</a> in 1994. In the event of default the buyer of the CDS receives compensation (usually the <a href="/wiki/Face_value" title="Face value">face value</a> of the loan), and the seller of the CDS takes possession of the defaulted loan. However, anyone with sufficient collateral to trade with a bank or hedge fund can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct <a href="/wiki/Insurable_interest" title="Insurable interest">insurable interest</a> in the loan (these are called "naked" CDSs). If there are more CDS contracts outstanding than bonds in existence, a protocol exists to hold a <a href="/wiki/Credit_default_swap#Auctions" title="Credit default swap">credit event auction</a>; the payment received is usually substantially less than the face value of the loan.<sup id="cite_ref-48" class="reference"><a href="#cite_note-48"><span class="cite-bracket">[</span>48<span class="cite-bracket">]</span></a></sup> Credit default swaps have existed since the early 1990s, and increased in use after 2003. By the end of 2007, the outstanding CDS amount was $62.2 trillion,<sup id="cite_ref-ISDA_Annual_Chart_49-0" class="reference"><a href="#cite_note-ISDA_Annual_Chart-49"><span class="cite-bracket">[</span>49<span class="cite-bracket">]</span></a></sup> falling to $26.3 trillion by mid-year 2010<sup id="cite_ref-test_50-0" class="reference"><a href="#cite_note-test-50"><span class="cite-bracket">[</span>50<span class="cite-bracket">]</span></a></sup> but reportedly $25.5<sup id="cite_ref-51" class="reference"><a href="#cite_note-51"><span class="cite-bracket">[</span>51<span class="cite-bracket">]</span></a></sup> trillion in early 2012. CDSs are not traded on an exchange and there is no required reporting of transactions to a government agency.<sup id="cite_ref-IMF254_52-0" class="reference"><a href="#cite_note-IMF254-52"><span class="cite-bracket">[</span>52<span class="cite-bracket">]</span></a></sup> During the <a href="/wiki/2007%E2%80%932008_financial_crisis" class="mw-redirect" title="2007–2008 financial crisis">2007–2008 financial crisis</a>, the lack of transparency in this large market became a concern to regulators as it could pose a <a href="/wiki/Systemic_risk" title="Systemic risk">systemic risk</a>.<sup id="cite_ref-Deutsche_Bank_Report_53-0" class="reference"><a href="#cite_note-Deutsche_Bank_Report-53"><span class="cite-bracket">[</span>53<span class="cite-bracket">]</span></a></sup> </p><p><sup id="cite_ref-Sirri_Testimony_54-0" class="reference"><a href="#cite_note-Sirri_Testimony-54"><span class="cite-bracket">[</span>54<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-Partnoy_Article_55-0" class="reference"><a href="#cite_note-Partnoy_Article-55"><span class="cite-bracket">[</span>55<span class="cite-bracket">]</span></a></sup> In March 2010, the [DTCC] Trade Information Warehouse announced it would give regulators greater access to its credit default swaps database.<sup id="cite_ref-56" class="reference"><a href="#cite_note-56"><span class="cite-bracket">[</span>56<span class="cite-bracket">]</span></a></sup> CDS data can be used by <a href="/wiki/Financial_risk_management" title="Financial risk management">financial professionals</a>, regulators, and the media to monitor how the market views <a href="/wiki/Credit_risk" title="Credit risk">credit risk</a> of any entity on which a CDS is available, which can be compared to that provided by <a href="/wiki/Credit_rating_agency" title="Credit rating agency">credit rating agencies</a>. U.S. courts may soon be following suit. Most CDSs are documented using standard forms drafted by the <a href="/wiki/International_Swaps_and_Derivatives_Association" title="International Swaps and Derivatives Association">International Swaps and Derivatives Association</a> (ISDA), although there are many variants.<sup id="cite_ref-Deutsche_Bank_Report_53-1" class="reference"><a href="#cite_note-Deutsche_Bank_Report-53"><span class="cite-bracket">[</span>53<span class="cite-bracket">]</span></a></sup> In addition to the basic, single-name swaps, there are <a href="/wiki/Basket_(finance)" title="Basket (finance)">basket</a> default swaps (BDSs), index CDSs, funded CDSs (also called <a href="/wiki/Credit-linked_note" title="Credit-linked note">credit-linked notes</a>), as well as loan-only credit default swaps (LCDS). In addition to corporations and governments, the reference entity can include a <a href="/wiki/Special-purpose_vehicle" class="mw-redirect" title="Special-purpose vehicle">special-purpose vehicle</a> issuing <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed securities</a>.<sup id="cite_ref-Mengle_Overview_57-0" class="reference"><a href="#cite_note-Mengle_Overview-57"><span class="cite-bracket">[</span>57<span class="cite-bracket">]</span></a></sup> Some claim that derivatives such as CDS are potentially dangerous in that they combine priority in bankruptcy with a lack of transparency. A CDS can be unsecured (without collateral) and be at higher risk for a default. </p> <div class="mw-heading mw-heading3"><h3 id="Forwards">Forwards</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=16" title="Edit section: Forwards"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In finance, a <b>forward contract</b> or simply a <b>forward</b> is a non-standardized contract between two parties to buy or to sell an asset at a specified future time at an amount agreed upon today, making it a type of derivative instrument.<sup id="cite_ref-hull_9-2" class="reference"><a href="#cite_note-hull-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-58" class="reference"><a href="#cite_note-58"><span class="cite-bracket">[</span>58<span class="cite-bracket">]</span></a></sup> This is in contrast to a <a href="/wiki/Spot_contract" title="Spot contract">spot contract</a>, which is an agreement to buy or sell an asset on its spot date, which may vary depending on the instrument, for example most of the FX contracts have Spot Date two business days from today. The party agreeing to buy the underlying asset in the future assumes a <a href="/wiki/Long_position" class="mw-redirect" title="Long position">long position</a>, and the party agreeing to sell the asset in the future assumes a <a href="/wiki/Short_position" class="mw-redirect" title="Short position">short position</a>. The price agreed upon is called the <a href="/w/index.php?title=Delivery_price&action=edit&redlink=1" class="new" title="Delivery price (page does not exist)">delivery price</a>, which is equal to the <a href="/wiki/Forward_price" title="Forward price">forward price</a> at the time the contract is entered into. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time and date of trade is not the same as the <a href="/wiki/Value_date" title="Value date">value date</a> where the <a href="/wiki/Security_(finance)" title="Security (finance)">securities</a> themselves are exchanged. </p><p>The <a href="/wiki/Forward_price" title="Forward price">forward price</a> of such a contract is commonly contrasted with the <a href="/wiki/Spot_price" class="mw-redirect" title="Spot price">spot price</a>, which is the price at which the asset changes hands on the <a href="/wiki/Spot_date" title="Spot date">spot date</a>. The difference between the spot and the forward price is the <a href="/wiki/Forward_premium" class="mw-redirect" title="Forward premium">forward premium</a> or forward discount, generally considered in the form of a <a href="/wiki/Profit_(accounting)" title="Profit (accounting)">profit</a>, or loss, by the purchasing party. Forwards, like other derivative securities, can be used to <a href="/wiki/Hedge_(finance)" title="Hedge (finance)">hedge</a> risk (typically currency or exchange rate risk), as a means of <a href="/wiki/Speculation" title="Speculation">speculation</a>, or to allow a party to take advantage of a quality of the underlying instrument which is time-sensitive. </p><p>A closely related contract is a <a href="/wiki/Futures_contract" title="Futures contract">futures contract</a>; they <a href="/wiki/Futures_contract#Futures_versus_forwards" title="Futures contract">differ in certain respects</a>. Forward contracts are very similar to futures contracts, except they are not exchange-traded, or defined on standardized assets.<sup id="cite_ref-59" class="reference"><a href="#cite_note-59"><span class="cite-bracket">[</span>59<span class="cite-bracket">]</span></a></sup> Forwards also typically have no interim partial settlements or "true-ups" in margin requirements like futures – such that the parties do not exchange additional property securing the party at gain and the entire unrealized gain or loss builds up while the contract is open. However, being traded <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">over the counter</a> (<a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">OTC</a>), forward contracts specification can be customized and may include mark-to-market and daily margin calls. Hence, a forward contract arrangement might call for the loss party to pledge collateral or additional collateral to better secure the party at gain.<sup class="noprint Inline-Template" style="margin-left:0.1em; white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Please_clarify" title="Wikipedia:Please clarify"><span title="The text near this tag may need clarification or removal of jargon. (November 2009)">clarification needed</span></a></i>]</sup> In other words, the terms of the forward contract will determine the collateral calls based upon certain "trigger" events relevant to a particular counterparty such as among other things, credit ratings, value of assets under management or redemptions over a specific time frame (e.g., quarterly, annually). </p> <div class="mw-heading mw-heading3"><h3 id="Futures">Futures</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=17" title="Edit section: Futures"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In <a href="/wiki/Finance" title="Finance">finance</a>, a 'futures contract' (more colloquially, <b>futures</b>) is a standardized <a href="/wiki/Contract" title="Contract">contract</a> between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the <i>futures price</i>) with delivery and payment occurring at a specified future date, the <i>delivery date</i>, making it a derivative product (i.e. a financial product that is derived from an underlying asset). The contracts are negotiated at a <a href="/wiki/Futures_exchange" title="Futures exchange">futures exchange</a>, which acts as an intermediary between buyer and seller. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "<a href="/wiki/Long_(finance)" title="Long (finance)">long</a>", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "<a href="/wiki/Short_(finance)" title="Short (finance)">short</a>". </p><p>While the futures contract specifies a trade taking place in the future, the purpose of the futures exchange is to act as intermediary and mitigate the risk of default by either party in the intervening period. For this reason, the futures exchange requires both parties to put up an initial amount of cash (performance bond), the <a href="/wiki/Futures_contract#Margin" title="Futures contract">margin</a>. Margins, sometimes set as a percentage of the value of the futures contract, need to be proportionally maintained at all times during the life of the contract to underpin this mitigation because the price of the contract will vary in keeping with supply and demand and will change daily and thus one party or the other will theoretically be making or losing money. To mitigate risk and the possibility of default by either party, the product is marked to market on a daily basis whereby the difference between the prior agreed-upon price and the actual daily futures price is settled on a daily basis. This is sometimes known as the variation margin where the futures exchange will draw money out of the losing party's margin account and put it into the other party's thus ensuring that the correct daily loss or profit is reflected in the respective account. If the margin account goes below a certain value set by the Exchange, then a margin call is made and the account owner must replenish the margin account. This process is known as "marking to market". Thus on the delivery date, the amount exchanged is not the specified price on the contract but the <a href="/wiki/Spot_price" class="mw-redirect" title="Spot price">spot value</a> (i.e., the original value agreed upon, since any gain or loss has already been previously settled by marking to market). Upon marketing the strike price is often reached and creates much income for the "caller". </p><p>A closely related contract is a <a href="/wiki/Forward_contract" title="Forward contract">forward contract</a>. A forward is like a futures in that it specifies the exchange of goods for a specified price at a specified future date. However, a forward is not traded on an exchange and thus does not have the interim partial payments due to marking to market. Nor is the contract standardized, as on the exchange. Unlike an <a href="/wiki/Option_(finance)" title="Option (finance)">option</a>, both parties of a futures contract must fulfill the contract on the delivery date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures <a href="/wiki/Position_(finance)" title="Position (finance)">position</a> can close out its contract obligations by taking the opposite position on another futures contract on the same asset and settlement date. The difference in futures prices is then a profit or loss. </p> <div class="mw-heading mw-heading3"><h3 id="Mortgage-backed_securities">Mortgage-backed securities</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=18" title="Edit section: Mortgage-backed securities"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>A <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security"><b>mortgage-backed security</b> (<b>MBS</b>)</a> is an <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed security</a> that is secured by a <a href="/wiki/Mortgage" title="Mortgage">mortgage</a>, or more commonly a collection ("pool") of sometimes hundreds of <a href="/wiki/Mortgage_loan" class="mw-redirect" title="Mortgage loan">mortgages</a>. The mortgages are sold to a group of individuals (a government agency or investment bank) that "<a href="/wiki/Securitization" title="Securitization">securitizes</a>", or packages, the loans together into a security that can be sold to investors. The mortgages of an MBS may be <a href="/wiki/Residential_mortgage-backed_security" title="Residential mortgage-backed security">residential</a> or <a href="/wiki/Commercial_mortgage-backed_security" title="Commercial mortgage-backed security">commercial</a>, depending on whether it is an Agency MBS or a Non-Agency MBS; in the United States they may be issued by structures set up by <a href="/wiki/Government-sponsored_enterprise" title="Government-sponsored enterprise">government-sponsored enterprises</a> like <a href="/wiki/Fannie_Mae" title="Fannie Mae">Fannie Mae</a> or <a href="/wiki/Freddie_Mac" title="Freddie Mac">Freddie Mac</a>, or they can be "private-label", issued by structures set up by investment banks. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include <a href="/wiki/Collateralized_mortgage_obligation" title="Collateralized mortgage obligation">collateralized mortgage obligations</a> (CMOs, often structured as real estate mortgage investment conduits) and <a href="/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation">collateralized debt obligations</a> (CDOs).<sup id="cite_ref-60" class="reference"><a href="#cite_note-60"><span class="cite-bracket">[</span>60<span class="cite-bracket">]</span></a></sup> </p><p>The shares of subprime MBSs issued by various structures, such as CMOs, are not identical but rather issued as <a href="/wiki/Tranche" title="Tranche">tranches</a> (French for "slices"), each with a different level of priority in the debt repayment stream, giving them different levels of risk and reward. Tranches – especially the lower-priority, higher-interest tranches – of an MBS are/were often further repackaged and resold as collaterized debt obligations.<sup id="cite_ref-61" class="reference"><a href="#cite_note-61"><span class="cite-bracket">[</span>61<span class="cite-bracket">]</span></a></sup> These subprime MBSs issued by investment banks were a major issue in the <a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">subprime mortgage crisis</a> of 2006–2008 . The total face value of an MBS decreases over time, because like mortgages, and unlike <a href="/wiki/Bond_(finance)" title="Bond (finance)">bonds</a>, and most other fixed-income securities, the <a href="/wiki/Debt" title="Debt">principal</a> in an MBS is not paid back as a single payment to the bond holder at maturity but rather is paid along with the interest in each periodic payment (monthly, quarterly, etc.). This decrease in face value is measured by the MBS's "factor", the percentage of the original "face" that remains to be repaid. </p> <div class="mw-heading mw-heading3"><h3 id="Options">Options</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=19" title="Edit section: Options"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In <a href="/wiki/Finance" title="Finance">finance</a>, an <b><a href="/wiki/Option_(finance)" title="Option (finance)">option</a></b> is a contract which gives the <i>buyer</i> (the owner) the right, but not the obligation, to buy or sell an underlying asset or <a href="/wiki/Financial_instrument" title="Financial instrument">instrument</a> at a specified <a href="/wiki/Strike_price" title="Strike price">strike price</a> on or before a specified <a href="/wiki/Expiration_(options)" title="Expiration (options)">date</a>. The <i>seller</i> has the corresponding obligation to fulfill the transaction – that is to sell or buy – if the buyer (owner) "exercises" the option. The buyer pays a premium to the seller for this right. An option that conveys to the owner the right to buy something at a certain price is a "<a href="/wiki/Call_option" title="Call option">call option</a>"; an option that conveys the right of the owner to sell something at a certain price is a "<a href="/wiki/Put_option" title="Put option">put option</a>". Both are commonly traded, but for clarity, the call option is more frequently discussed. Options valuation is a topic of ongoing research in academic and practical finance. In basic terms, the value of an option is commonly decomposed into two parts: </p> <ul><li>The first part is the "intrinsic value", defined as the difference between the market value of the underlying and the strike price of the given option.</li> <li>The second part is the "time value", which depends on a set of other factors which, through a multivariable, non-linear interrelationship, reflect the <a href="/wiki/Discounted" class="mw-redirect" title="Discounted">discounted</a> <a href="/wiki/Expected_value" title="Expected value">expected value</a> of that difference at expiration.</li></ul> <p>Although options valuation has been studied since the 19th century, the contemporary approach is based on the <a href="/wiki/Black%E2%80%93Scholes_model" title="Black–Scholes model">Black–Scholes model</a>, which was first published in 1973.<sup id="cite_ref-62" class="reference"><a href="#cite_note-62"><span class="cite-bracket">[</span>62<span class="cite-bracket">]</span></a></sup><sup class="noprint Inline-Template" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Reliable_sources" title="Wikipedia:Reliable sources"><span title="The material near this tag may rely on an unreliable source. (August 2013)">unreliable source?</span></a></i>]</sup><sup id="cite_ref-63" class="reference"><a href="#cite_note-63"><span class="cite-bracket">[</span>63<span class="cite-bracket">]</span></a></sup> </p><p>Options contracts have been known for many centuries. However, both trading activity and academic interest increased when, as from 1973, options were issued with standardized terms and traded through a guaranteed clearing house at the <a href="/wiki/Chicago_Board_Options_Exchange" class="mw-redirect" title="Chicago Board Options Exchange">Chicago Board Options Exchange</a>. Today, many options are created in a standardized form and traded through clearing houses on regulated <a href="/wiki/Exchange_(organized_market)" title="Exchange (organized market)">options exchanges</a>, while other <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">over-the-counter</a> options are written as bilateral, customized contracts between a single buyer and seller, one or both of which may be a dealer or market-maker. Options are part of a larger class of financial instruments known as <a href="/wiki/Derivative_products" class="mw-redirect" title="Derivative products">derivative products</a> or simply derivatives.<sup id="cite_ref-hull_9-3" class="reference"><a href="#cite_note-hull-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-64" class="reference"><a href="#cite_note-64"><span class="cite-bracket">[</span>64<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Swaps">Swaps</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=20" title="Edit section: Swaps"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>A <b>swap</b> is a derivative in which two <a href="/wiki/Counterparty" title="Counterparty">counterparties</a> <a href="/wiki/Trade" title="Trade">exchange</a> cash flows of one party's <a href="/wiki/Financial_instrument" title="Financial instrument">financial instrument</a> for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two <a href="/wiki/Bond_(finance)" title="Bond (finance)">bonds</a>, the benefits in question can be the periodic interest (<a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon</a>) payments associated with such bonds. Specifically, two counterparties agree to the exchange one stream of <a href="/wiki/Cash_flow" title="Cash flow">cash flows</a> against another stream. These streams are called the swap's "legs". The swap agreement defines the dates when the cash flows are to be paid and the way they are <a href="/wiki/Accrual" title="Accrual">accrued</a> and calculated. Usually at the time when the contract is initiated, at least one of these series of cash flows is determined by an uncertain variable such as a <a href="/wiki/Floating_interest_rate" title="Floating interest rate">floating interest rate</a>, <a href="/wiki/Foreign_exchange_rate" class="mw-redirect" title="Foreign exchange rate">foreign exchange rate</a>, equity price, or commodity price.<sup id="cite_ref-hull_9-4" class="reference"><a href="#cite_note-hull-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup> </p><p>The cash flows are calculated over a <a href="/wiki/Notional_principal_amount" class="mw-redirect" title="Notional principal amount">notional principal amount</a>. Contrary to a <a href="/wiki/Futures_contract" title="Futures contract">future</a>, a <a href="/wiki/Forward_contract" title="Forward contract">forward</a> or an <a href="/wiki/Option_(finance)" title="Option (finance)">option</a>, the notional amount is usually not exchanged between counterparties. Consequently, swaps can be in cash or <a href="/wiki/Collateral_(finance)" title="Collateral (finance)">collateral</a>. Swaps can be used to <a href="/wiki/Hedge_(finance)" title="Hedge (finance)">hedge</a> certain risks such as <a href="/wiki/Interest_rate_risk" title="Interest rate risk">interest rate risk</a>, or to <a href="/wiki/Speculation" title="Speculation">speculate</a> on changes in the expected direction of underlying prices. </p><p>Swaps were first introduced to the public in 1981 when <a href="/wiki/IBM" title="IBM">IBM</a> and the <a href="/wiki/World_Bank" title="World Bank">World Bank</a> entered into a swap agreement.<sup id="cite_ref-65" class="reference"><a href="#cite_note-65"><span class="cite-bracket">[</span>65<span class="cite-bracket">]</span></a></sup> Today, swaps are among the most heavily traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding is more than $348 trillion in 2010, according to the <a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a> (BIS).<sup class="noprint Inline-Template Template-Fact" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed"><span title="This claim needs references to reliable sources. (December 2014)">citation needed</span></a></i>]</sup> The five generic types of swaps, in order of their quantitative importance, are: <a href="/wiki/Interest_rate_swap" title="Interest rate swap">interest rate swaps</a>, <a href="/wiki/Currency_swap" title="Currency swap">currency swaps</a>, credit swaps, <a href="/wiki/Commodity_swap" title="Commodity swap">commodity swaps</a> and <a href="/wiki/Equity_swap" title="Equity swap">equity swaps</a> (there are many other types). </p> <div class="mw-heading mw-heading2"><h2 id="Economic_function_of_the_derivative_market">Economic function of the derivative market</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=21" title="Edit section: Economic function of the derivative market"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Some of the salient economic functions of the derivative market include: </p> <ol><li>Prices in a structured <a href="/wiki/Derivative_market" class="mw-redirect" title="Derivative market">derivative market</a> not only replicate the discernment of the market participants about the future but also lead the prices of underlying to the professed future level. On the expiration of the <a href="/wiki/Derivative_contract" class="mw-redirect" title="Derivative contract">derivative contract</a>, the prices of derivatives congregate with the prices of the underlying. Therefore, derivatives are essential tools to determine both current and future prices.</li> <li>The derivatives market reallocates risk from the people who prefer <a href="/wiki/Risk_aversion" title="Risk aversion">risk aversion</a> to the people who have an appetite for risk.</li> <li>The intrinsic nature of derivatives market associates them to the underlying <a href="/wiki/Spot_market" title="Spot market">spot market</a>. Due to derivatives there is a considerable increase in trade volumes of the underlying spot market. The dominant factor behind such an escalation is increased participation by additional players who would not have otherwise participated due to absence of any procedure to transfer risk.</li> <li>As supervision, reconnaissance of the activities of various participants becomes tremendously difficult in assorted markets; the establishment of an organized form of market becomes all the more imperative. Therefore, in the presence of an organized derivatives market, <a href="/wiki/Speculation" title="Speculation">speculation</a> can be controlled, resulting in a more meticulous environment.</li> <li>Third parties can use publicly available derivative prices as educated predictions of uncertain future outcomes, for example, the likelihood that a corporation will default on its debts.</li></ol> <p>In a nutshell, there is a substantial increase in savings and investment in the long run due to augmented activities by derivative <a href="/wiki/Market_participant" title="Market participant">market participant</a>.<sup id="cite_ref-66" class="reference"><a href="#cite_note-66"><span class="cite-bracket">[</span>66<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Valuation">Valuation</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=22" title="Edit section: Valuation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <figure typeof="mw:File/Thumb"><a href="/wiki/File:Total_world_wealth_vs_total_world_derivatives_1998-2007.gif" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/e/e8/Total_world_wealth_vs_total_world_derivatives_1998-2007.gif/450px-Total_world_wealth_vs_total_world_derivatives_1998-2007.gif" decoding="async" width="450" height="270" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/e/e8/Total_world_wealth_vs_total_world_derivatives_1998-2007.gif/675px-Total_world_wealth_vs_total_world_derivatives_1998-2007.gif 1.5x, //upload.wikimedia.org/wikipedia/commons/e/e8/Total_world_wealth_vs_total_world_derivatives_1998-2007.gif 2x" data-file-width="676" data-file-height="406" /></a><figcaption>Total world derivatives from 1998 to 2007<sup id="cite_ref-67" class="reference"><a href="#cite_note-67"><span class="cite-bracket">[</span>67<span class="cite-bracket">]</span></a></sup> compared to total world wealth in the year 2000<sup id="cite_ref-68" class="reference"><a href="#cite_note-68"><span class="cite-bracket">[</span>68<span class="cite-bracket">]</span></a></sup></figcaption></figure> <div class="mw-heading mw-heading3"><h3 id="Market_and_arbitrage-free_prices">Market and arbitrage-free prices</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=23" title="Edit section: Market and arbitrage-free prices"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Two common measures of value are: </p> <ul><li><a href="/wiki/Market_price" class="mw-redirect" title="Market price">Market price</a>, i.e. the price at which traders are willing to buy or sell the contract</li> <li><a href="/wiki/Arbitrage" title="Arbitrage">Arbitrage</a>-free price, meaning that no risk-free profits can be made by trading in these contracts (see <i><a href="/wiki/Rational_pricing" title="Rational pricing">rational pricing</a></i>)</li></ul> <div class="mw-heading mw-heading3"><h3 id="Determining_the_market_price">Determining the market price</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=24" title="Edit section: Determining the market price"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>For exchange-traded derivatives, market price is usually transparent (often published in real time by the exchange, based on all the current bids and offers placed on that particular contract at any one time). Complications can arise with OTC or floor-traded contracts though, as trading is handled manually, making it difficult to automatically broadcast prices. In particular with OTC contracts, there is no central exchange to collate and disseminate prices. </p> <div class="mw-heading mw-heading3"><h3 id="Determining_the_arbitrage-free_price">Determining the arbitrage-free price</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=25" title="Edit section: Determining the arbitrage-free price"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951" /><div role="note" class="hatnote navigation-not-searchable">See also: <a href="/wiki/List_of_finance_topics#Derivatives_pricing" class="mw-redirect" title="List of finance topics">List of finance topics § Derivatives pricing</a></div> <p>The arbitrage-free price for a derivatives contract can be complex, and there are many different variables to consider. Arbitrage-free pricing is a central topic of <a href="/wiki/Financial_mathematics" class="mw-redirect" title="Financial mathematics">financial mathematics</a>. For futures/forwards the arbitrage free price is relatively straightforward, involving the price of the underlying together with the cost of carry (income received less interest costs), although there can be complexities. </p><p>However, for options and more complex derivatives, pricing involves developing a complex pricing model: understanding the <a href="/wiki/Stochastic_process" title="Stochastic process">stochastic process</a> of the price of the underlying asset is often crucial. A key equation for the theoretical <a href="/wiki/Valuation_of_options" title="Valuation of options">valuation of options</a> is the <a href="/wiki/Black%E2%80%93Scholes_formula" class="mw-redirect" title="Black–Scholes formula">Black–Scholes formula</a>, which is based on the assumption that the cash flows from a European stock <a href="/wiki/Option_(finance)" title="Option (finance)">option</a> can be replicated by a continuous buying and selling strategy using only the stock. A simplified version of this valuation technique is the <a href="/wiki/Binomial_options_model" class="mw-redirect" title="Binomial options model">binomial options model</a>. </p><p>OTC represents the biggest challenge in using models to price derivatives. Since these contracts are not publicly traded, no market price is available to validate the theoretical valuation. Most of the model's results are input-dependent (meaning the final price depends heavily on how we derive the pricing inputs).<sup id="cite_ref-69" class="reference"><a href="#cite_note-69"><span class="cite-bracket">[</span>69<span class="cite-bracket">]</span></a></sup> Therefore, it is common that OTC derivatives are priced by Independent Agents that both counterparties involved in the deal designate upfront (when signing the contract). </p> <div class="mw-heading mw-heading2"><h2 id="Risks">Risks</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=26" title="Edit section: Risks"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Derivatives are often subject to the following criticisms; particularly since the <a href="/wiki/2007%E2%80%932008_financial_crisis" class="mw-redirect" title="2007–2008 financial crisis">2007–2008 financial crisis</a>, the discipline of <a href="/wiki/Risk_management" title="Risk management">Risk management</a> has developed attempting to address the below and other risks – see <a href="/wiki/Financial_risk_management#Banking" title="Financial risk management">Financial risk management § Banking</a>. </p> <div class="mw-heading mw-heading3"><h3 id="Hidden_tail_risk">Hidden tail risk</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=27" title="Edit section: Hidden tail risk"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>According to <a href="/wiki/Raghuram_Rajan" title="Raghuram Rajan">Raghuram Rajan</a>, a former chief economist of the <a href="/wiki/International_Monetary_Fund" title="International Monetary Fund">International Monetary Fund</a> (IMF), "... it may well be that the managers of these firms [investment funds] have figured out the correlations between the various instruments they hold and believe they are hedged. Yet as Chan and others (2005) point out, the lessons of summer 1998 following the default on Russian government debt is that correlations that are zero or negative in normal times can turn overnight to one – a phenomenon they term "phase lock-in". A hedged position "can become unhedged at the worst times, inflicting substantial losses on those who mistakenly believe they are protected".<sup id="cite_ref-70" class="reference"><a href="#cite_note-70"><span class="cite-bracket">[</span>70<span class="cite-bracket">]</span></a></sup> See the <a href="/wiki/FRTB" class="mw-redirect" title="FRTB">FRTB</a> framework, which seeks to address this to some extent. </p> <div class="mw-heading mw-heading3"><h3 id="Leverage">Leverage</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=28" title="Edit section: Leverage"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951" /><div role="note" class="hatnote navigation-not-searchable">Further information: <a href="/wiki/Leverage_(finance)#Risk" title="Leverage (finance)">Leverage (finance) § Risk</a></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951" /><div role="note" class="hatnote navigation-not-searchable">See also: <a href="/wiki/List_of_trading_losses" title="List of trading losses">List of trading losses</a></div> <p>The use of derivatives can result in large losses because of the use of <a href="/wiki/Leverage_(finance)" title="Leverage (finance)">leverage</a>, or borrowing. Derivatives allow <a href="/wiki/Investor" title="Investor">investors</a> to earn large returns from small movements in the underlying asset's price. However, investors could lose large amounts if the price of the underlying moves against them significantly. There have been several instances of massive losses in derivative markets, such as the following: </p> <dl><dd><ul><li><a href="/wiki/American_International_Group" title="American International Group">American International Group</a> (AIG) lost more than US$18 billion through a subsidiary over the preceding three quarters on <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a> (CDSs).<sup id="cite_ref-71" class="reference"><a href="#cite_note-71"><span class="cite-bracket">[</span>71<span class="cite-bracket">]</span></a></sup> The United States <a href="/wiki/Federal_Reserve_System" class="mw-redirect" title="Federal Reserve System">Federal Reserve Bank</a> announced the creation of a secured credit facility of up to US$85 billion, to prevent the company's collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners.<sup id="cite_ref-72" class="reference"><a href="#cite_note-72"><span class="cite-bracket">[</span>72<span class="cite-bracket">]</span></a></sup></li> <li>The <a href="/wiki/2008_Soci%C3%A9t%C3%A9_G%C3%A9n%C3%A9rale_trading_loss" title="2008 Société Générale trading loss">loss of US$7.2 Billion</a> by <a href="/wiki/Soci%C3%A9t%C3%A9_G%C3%A9n%C3%A9rale" title="Société Générale">Société Générale</a> in January 2008 through mis-use of futures contracts.</li> <li>The loss of US$6.4 billion in the failed fund <a href="/wiki/Amaranth_Advisors" title="Amaranth Advisors">Amaranth Advisors</a>, which was long natural gas in September 2006 when the price plummeted.</li> <li>The loss of US$4.6 billion in the failed fund <a href="/wiki/Long-Term_Capital_Management" title="Long-Term Capital Management">Long-Term Capital Management</a> in 1998.</li> <li>The loss of US$1.3 billion equivalent in oil derivatives in 1993 and 1994 by <a href="/wiki/Metallgesellschaft_AG" class="mw-redirect" title="Metallgesellschaft AG">Metallgesellschaft AG</a>.<sup id="cite_ref-73" class="reference"><a href="#cite_note-73"><span class="cite-bracket">[</span>73<span class="cite-bracket">]</span></a></sup></li> <li>The loss of US$1.2 billion equivalent in equity derivatives in 1995 by <a href="/wiki/Barings_Bank" title="Barings Bank">Barings Bank</a>.<sup id="cite_ref-74" class="reference"><a href="#cite_note-74"><span class="cite-bracket">[</span>74<span class="cite-bracket">]</span></a></sup></li> <li>UBS AG, Switzerland's biggest bank, suffered a $2 billion loss through unauthorized trading discovered in September 2011.<sup id="cite_ref-75" class="reference"><a href="#cite_note-75"><span class="cite-bracket">[</span>75<span class="cite-bracket">]</span></a></sup></li></ul></dd></dl> <p>Derivatives typically have a <b>large notional value</b>. As such, there is the danger that their use could result in losses for which the investor would be unable to compensate. The possibility that this could lead to a chain reaction ensuing in an economic crisis was pointed out by famed investor <a href="/wiki/Warren_Buffett" title="Warren Buffett">Warren Buffett</a> in <a href="/wiki/Berkshire_Hathaway" title="Berkshire Hathaway">Berkshire Hathaway</a>'s 2002 annual report. Buffett called them 'financial weapons of mass destruction.' A potential problem with derivatives is that they comprise an increasingly larger notional amount of assets which may lead to distortions in the underlying capital and equities markets themselves. Investors begin to look at the derivatives markets to make a decision to buy or sell securities and so what was originally meant to be a market to transfer risk now becomes a leading indicator.<a rel="nofollow" class="external text" href="http://www.berkshirehathaway.com/2002ar/2002ar.pdf">(See Berkshire Hathaway Annual Report for 2002)</a> </p> <div class="mw-heading mw-heading3"><h3 id="Counterparty_risk">Counterparty risk</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=29" title="Edit section: Counterparty risk"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Some derivatives (especially swaps) expose investors to <a href="/wiki/Credit_risk#Counterparty_risk" title="Credit risk">counterparty risk</a>, or risk arising from the other party in a financial transaction. Counterparty risk results from the differences in the current price versus the expected future settlement price.<sup id="cite_ref-76" class="reference"><a href="#cite_note-76"><span class="cite-bracket">[</span>76<span class="cite-bracket">]</span></a></sup> Different types of derivatives have different levels of counter party risk. For example, standardized stock options by law require the party at risk to have a certain amount deposited with the exchange, showing that they can pay for any losses; banks that help businesses swap variable for fixed rates on loans may do credit checks on both parties. However, in private agreements between two companies, for example, there may not be benchmarks for performing due diligence and risk analysis. </p> <div class="mw-heading mw-heading2"><h2 id="Financial_reform_and_government_regulation">Financial reform and government regulation</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=30" title="Edit section: Financial reform and government regulation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Under US law and the laws of most other developed countries, derivatives have special legal exemptions that make them a particularly attractive legal form to extend credit. The strong creditor protections afforded to derivatives counterparties, in combination with their complexity and lack of transparency however, can cause capital markets to underprice credit risk. This can contribute to credit booms, and increase systemic risks. Indeed, the use of derivatives to conceal credit risk from third parties while protecting derivative counterparties contributed to the <a href="/wiki/2007%E2%80%932008_financial_crisis" class="mw-redirect" title="2007–2008 financial crisis">2007–2008 financial crisis</a> in the United States. </p><p>In the context of a 2010 examination of the <a href="/wiki/Intercontinental_Exchange" title="Intercontinental Exchange">ICE Trust</a>, an industry self-regulatory body, <a href="/wiki/Gary_Gensler" title="Gary Gensler">Gary Gensler</a>, the chairman of the <a href="/wiki/Commodity_Futures_Trading_Commission" title="Commodity Futures Trading Commission">Commodity Futures Trading Commission</a> which regulates most derivatives, was quoted saying that the derivatives marketplace as it functions now "adds up to higher costs to all Americans". More oversight of the banks in this market is needed, he also said. Additionally, the report said, "[t]he <a href="/wiki/United_States_Department_of_Justice" title="United States Department of Justice">Department of Justice</a> is looking into derivatives, too. The department's antitrust unit is actively investigating 'the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries', according to a department spokeswoman."<sup id="cite_ref-77" class="reference"><a href="#cite_note-77"><span class="cite-bracket">[</span>77<span class="cite-bracket">]</span></a></sup> </p><p>For legislators and committees responsible for financial reform related to derivatives in the United States and elsewhere, distinguishing between hedging and speculative derivatives activities has been a nontrivial challenge. The distinction is critical because regulation should help to isolate and curtail speculation with derivatives, especially for "systemically significant" institutions whose default could be large enough to threaten the entire financial system. At the same time, the legislation should allow for responsible parties to hedge risk without unduly tying up working capital as collateral that firms may better employ elsewhere in their operations and investment.<sup id="cite_ref-78" class="reference"><a href="#cite_note-78"><span class="cite-bracket">[</span>78<span class="cite-bracket">]</span></a></sup> In this regard, it is important to distinguish between financial (e.g. banks) and non-financial end-users of derivatives (e.g. real estate development companies) because these firms' derivatives usage is inherently different. More importantly, the reasonable collateral that secures these different counterparties can be very different. The distinction between these firms is not always straight forward (e.g., hedge funds or even some private equity firms do not neatly fit either category). Finally, even financial users must be differentiated, as 'large' banks may classified as "systemically significant" whose derivatives activities must be more tightly monitored and restricted than those of smaller, local and regional banks. </p><p>Over-the-counter dealing will be less common as the <a href="/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act" title="Dodd–Frank Wall Street Reform and Consumer Protection Act">Dodd–Frank Wall Street Reform and Consumer Protection Act</a> comes into effect. The law mandated the clearing of certain swaps at registered exchanges and imposed various restrictions on derivatives. To implement Dodd-Frank, the <a rel="nofollow" class="external text" href="https://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm">CFTC developed new rules in at least 30 areas</a>. The Commission determines which swaps are subject to mandatory clearing and whether a derivatives exchange is eligible to clear a certain type of swap contract. </p><p>Nonetheless, the above and other challenges of the rule-making process have delayed full enactment of aspects of the legislation relating to derivatives. The challenges are further complicated by the necessity to orchestrate globalized financial reform among the nations that comprise the world's major financial markets, a primary responsibility of the <a href="/wiki/Financial_Stability_Board" title="Financial Stability Board">Financial Stability Board</a> whose progress is ongoing.<sup id="cite_ref-79" class="reference"><a href="#cite_note-79"><span class="cite-bracket">[</span>79<span class="cite-bracket">]</span></a></sup> </p><p>In the U.S., by February 2012 the combined effort of the SEC and CFTC had produced over 70 proposed and final derivatives rules.<sup id="cite_ref-lexology1_80-0" class="reference"><a href="#cite_note-lexology1-80"><span class="cite-bracket">[</span>80<span class="cite-bracket">]</span></a></sup> However, both of them had delayed adoption of a number of derivatives regulations because of the burden of other rule-making, litigation and opposition to the rules, and many core definitions (such as the terms "swap", "security-based swap", "swap dealer", "security-based swap dealer", "major swap participant" and "major security-based swap participant") had still not been adopted.<sup id="cite_ref-lexology1_80-1" class="reference"><a href="#cite_note-lexology1-80"><span class="cite-bracket">[</span>80<span class="cite-bracket">]</span></a></sup> SEC Chairman <a href="/wiki/Mary_Schapiro" title="Mary Schapiro">Mary Schapiro</a> opined: "At the end of the day, it probably does not make sense to harmonize everything [between the SEC and CFTC rules] because some of these products are quite different and certainly the market structures are quite different."<sup id="cite_ref-81" class="reference"><a href="#cite_note-81"><span class="cite-bracket">[</span>81<span class="cite-bracket">]</span></a></sup> On February 11, 2015, the Securities and Exchange Commission (SEC) released two final rules toward establishing a reporting and public disclosure framework for security-based swap transaction data.<sup id="cite_ref-82" class="reference"><a href="#cite_note-82"><span class="cite-bracket">[</span>82<span class="cite-bracket">]</span></a></sup> The two rules are not completely harmonized with the requirements with CFTC requirements. </p> <figure typeof="mw:File/Thumb"><a href="/wiki/File:Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/6/67/Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg/300px-Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg" decoding="async" width="300" height="200" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/6/67/Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg/450px-Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/6/67/Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg/600px-Dmitry_Medvedev_at_G20_Pittsburgh_summit-1.jpg 2x" data-file-width="650" data-file-height="434" /></a><figcaption>Country leaders at the <a href="/wiki/2009_G-20_Pittsburgh_summit" class="mw-redirect" title="2009 G-20 Pittsburgh summit">2009 G-20 Pittsburgh summit</a></figcaption></figure> <p>In November 2012, the SEC and regulators from Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, and Switzerland met to discuss reforming the OTC derivatives market, as had been agreed by leaders at the <a href="/wiki/2009_G-20_Pittsburgh_summit" class="mw-redirect" title="2009 G-20 Pittsburgh summit">2009 G-20 Pittsburgh summit</a> in September 2009.<sup id="cite_ref-autogenerated1_83-0" class="reference"><a href="#cite_note-autogenerated1-83"><span class="cite-bracket">[</span>83<span class="cite-bracket">]</span></a></sup> In December 2012, they released a joint statement to the effect that they recognized that the market is a global one and "firmly support the adoption and enforcement of robust and consistent standards in and across jurisdictions", with the goals of mitigating risk, improving <a href="/wiki/Transparency_(market)" title="Transparency (market)">transparency</a>, protecting against <a href="/wiki/Market_abuse" title="Market abuse">market abuse</a>, preventing regulatory gaps, reducing the potential for <a href="/wiki/Arbitrage" title="Arbitrage">arbitrage</a> opportunities, and fostering a <a href="/wiki/Level_playing_field" title="Level playing field">level playing field</a> for market participants.<sup id="cite_ref-autogenerated1_83-1" class="reference"><a href="#cite_note-autogenerated1-83"><span class="cite-bracket">[</span>83<span class="cite-bracket">]</span></a></sup> They also agreed on the need to reduce regulatory uncertainty and provide market participants with sufficient clarity on laws and regulations by avoiding, to the extent possible, the application of conflicting rules to the same entities and transactions, and minimizing the application of inconsistent and duplicative rules.<sup id="cite_ref-autogenerated1_83-2" class="reference"><a href="#cite_note-autogenerated1-83"><span class="cite-bracket">[</span>83<span class="cite-bracket">]</span></a></sup> At the same time, they noted that "complete harmonization – perfect alignment of rules across jurisdictions" would be difficult, because of jurisdictions' differences in law, policy, markets, implementation timing, and legislative and regulatory processes.<sup id="cite_ref-autogenerated1_83-3" class="reference"><a href="#cite_note-autogenerated1-83"><span class="cite-bracket">[</span>83<span class="cite-bracket">]</span></a></sup> </p><p>On December 20, 2013, the CFTC provided information on its swaps regulation "comparability" determinations. The release addressed the CFTC's cross-border compliance exceptions. Specifically it addressed which entity level and in some cases transaction-level requirements in six jurisdictions (Australia, Canada, the European Union, Hong Kong, Japan, and Switzerland) it found comparable to its own rules, thus permitting non-US swap dealers, major swap participants, and the foreign branches of US Swap Dealers and major swap participants in these jurisdictions to comply with local rules in lieu of Commission rules.<sup id="cite_ref-84" class="reference"><a href="#cite_note-84"><span class="cite-bracket">[</span>84<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Reporting">Reporting</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=31" title="Edit section: Reporting"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Mandatory reporting regulations are being finalized in a number of countries, such as <a href="/wiki/Dodd_Frank_Act" class="mw-redirect" title="Dodd Frank Act">Dodd Frank Act</a> in the US, the <a href="/wiki/European_Market_Infrastructure_Regulation" title="European Market Infrastructure Regulation">European Market Infrastructure Regulations</a> (EMIR) in Europe, as well as regulations in Hong Kong, Japan, Singapore, Canada, and other countries.<sup id="cite_ref-autogenerated2_85-0" class="reference"><a href="#cite_note-autogenerated2-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup> The OTC Derivatives Regulators Forum (ODRF), a group of over 40 worldwide regulators, provided trade repositories with a set of guidelines regarding data access to regulators, and the Financial Stability Board and CPSS <a href="/wiki/IOSCO" class="mw-redirect" title="IOSCO">IOSCO</a> also made recommendations in with regard to reporting.<sup id="cite_ref-autogenerated2_85-1" class="reference"><a href="#cite_note-autogenerated2-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup> </p><p><a href="/wiki/Depository_Trust_%26_Clearing_Corporation" title="Depository Trust & Clearing Corporation">DTCC</a>, through its "Global Trade Repository" (GTR) service, manages global trade repositories for interest rates, and commodities, foreign exchange, credit, and equity derivatives.<sup id="cite_ref-autogenerated2_85-2" class="reference"><a href="#cite_note-autogenerated2-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup> It makes global trade reports to the CFTC in the U.S., and plans to do the same for ESMA in Europe and for regulators in Hong Kong, Japan, and Singapore.<sup id="cite_ref-autogenerated2_85-3" class="reference"><a href="#cite_note-autogenerated2-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup> It covers cleared and uncleared OTC derivatives products, whether or not a trade is electronically processed or bespoke.<sup id="cite_ref-autogenerated2_85-4" class="reference"><a href="#cite_note-autogenerated2-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-86" class="reference"><a href="#cite_note-86"><span class="cite-bracket">[</span>86<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-87" class="reference"><a href="#cite_note-87"><span class="cite-bracket">[</span>87<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Glossary">Glossary</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=32" title="Edit section: Glossary"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a href="/wiki/Bilateral_netting" title="Bilateral netting">Bilateral netting</a>: A legally enforceable arrangement between a bank and a counter-party that creates a single legal obligation covering all included individual contracts. This means that a bank's obligation, in the event of the default or insolvency of one of the parties, would be the net sum of all positive and negative fair values of contracts included in the bilateral netting arrangement.</li> <li><a href="/wiki/Counterparty" title="Counterparty">Counterparty</a>: The legal and financial term for the other party in a financial transaction.</li> <li><a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a>: A contract that transfers <a href="/wiki/Credit_risk" title="Credit risk">credit risk</a> from a protection buyer to a credit protection seller. Credit derivative products can take many forms, such as <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a>, credit linked notes and total return swaps.</li> <li>Derivative: A financial contract whose value is derived from the performance of assets, interest rates, currency exchange rates, or indexes. Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof.</li> <li><a href="/wiki/Exchange-traded_derivative_contract" title="Exchange-traded derivative contract">Exchange-traded derivative contracts</a>: Standardized derivative contracts (e.g., <a href="/wiki/Futures_contract" title="Futures contract">futures contracts</a> and <a href="/wiki/Option_(finance)" title="Option (finance)">options</a>) that are transacted on an organized <a href="/wiki/Futures_exchange" title="Futures exchange">futures exchange</a>.</li> <li>Gross negative fair value: The sum of the fair values of contracts where the bank owes money to its counter-parties, without taking into account netting. This represents the maximum losses the bank's counter-parties would incur if the bank defaults and there is no netting of contracts, and no bank collateral was held by the counter-parties.</li> <li>Gross positive fair value: The sum total of the fair values of contracts where the bank is owed money by its counter-parties, without taking into account netting. This represents the maximum losses a bank could incur if all its counter-parties default and there is no netting of contracts, and the bank holds no counter-party collateral.</li> <li>High-risk mortgage securities: Securities where the price or expected average life is highly sensitive to interest rate changes, as determined by the U.S. <a href="/wiki/Federal_Financial_Institutions_Examination_Council" title="Federal Financial Institutions Examination Council">Federal Financial Institutions Examination Council</a> policy statement on high-risk mortgage securities.</li> <li><a href="/wiki/Notional_amount" title="Notional amount">Notional amount</a>: The nominal or <a href="/wiki/Face_amount" class="mw-redirect" title="Face amount">face amount</a> that is used to calculate payments made on swaps and other risk management products. This amount generally does not change hands and is thus referred to as notional.</li> <li><a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">Over-the-counter</a> (OTC) derivative contracts: Privately negotiated derivative contracts that are transacted off organized futures exchanges.</li> <li><a href="/wiki/Structured_note" title="Structured note">Structured notes</a>: Non-mortgage-backed <a href="/wiki/Debt_securities" class="mw-redirect" title="Debt securities">debt securities</a>, whose cash flow characteristics depend on one or more indices and / or have embedded forwards or options.</li> <li>Total risk-based capital: The sum of <a href="/wiki/Tier_1_capital" title="Tier 1 capital">tier 1</a> plus <a href="/wiki/Tier_2_capital" title="Tier 2 capital">tier 2 capital</a>. Tier 1 capital consists of common shareholders equity, perpetual preferred shareholders equity with noncumulative dividends, <a href="/wiki/Retained_earnings" title="Retained earnings">retained earnings</a>, and <a href="/wiki/Minority_interest" title="Minority interest">minority interests</a> in the equity accounts of consolidated subsidiaries. Tier 2 capital consists of <a href="/wiki/Subordinated_debt" title="Subordinated debt">subordinated debt</a>, intermediate-term <a href="/wiki/Preferred_stock" title="Preferred stock">preferred stock</a>, cumulative and long-term preferred stock, and a portion of a bank's <a href="/wiki/Allowance_for_Loan_and_Lease_Losses_(ALLL)" class="mw-redirect" title="Allowance for Loan and Lease Losses (ALLL)">allowance for loan and lease losses</a>.</li></ul> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=33" title="Edit section: See also"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1184024115">.mw-parser-output .div-col{margin-top:0.3em;column-width:30em}.mw-parser-output .div-col-small{font-size:90%}.mw-parser-output .div-col-rules{column-rule:1px solid #aaa}.mw-parser-output .div-col dl,.mw-parser-output .div-col ol,.mw-parser-output .div-col ul{margin-top:0}.mw-parser-output .div-col li,.mw-parser-output .div-col dd{page-break-inside:avoid;break-inside:avoid-column}</style><div class="div-col"> <ul><li><a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a></li> <li><a href="/wiki/Derivatives_law" title="Derivatives law">Derivatives law</a></li> <li><a href="/wiki/Equity_derivative" title="Equity derivative">Equity derivative</a></li> <li><a href="/wiki/Exotic_derivative" title="Exotic derivative">Exotic derivative</a></li> <li><a href="/wiki/Financial_engineering" title="Financial engineering">Financial engineering</a></li> <li><a href="/wiki/Foreign_exchange_derivative" title="Foreign exchange derivative">Foreign exchange derivative</a></li> <li><a href="/wiki/Freight_derivative" class="mw-redirect" title="Freight derivative">Freight derivative</a></li> <li><a href="/wiki/Inflation_derivative" title="Inflation derivative">Inflation derivative</a></li> <li><a href="/wiki/Interest_rate_derivative" title="Interest rate derivative">Interest rate derivative</a></li> <li><a href="/wiki/Property_derivatives" class="mw-redirect" title="Property derivatives">Property derivatives</a></li> <li><a href="/wiki/Weather_derivative" title="Weather derivative">Weather derivative</a></li></ul> </div> <div style="clear:both;" class=""></div> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=34" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist .references{font-size:100%;margin-bottom:0;list-style-type:inherit}.mw-parser-output .reflist-columns-2{column-width:30em}.mw-parser-output .reflist-columns-3{column-width:25em}.mw-parser-output .reflist-columns{margin-top:0.3em}.mw-parser-output .reflist-columns ol{margin-top:0}.mw-parser-output .reflist-columns li{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .reflist-upper-alpha{list-style-type:upper-alpha}.mw-parser-output .reflist-upper-roman{list-style-type:upper-roman}.mw-parser-output .reflist-lower-alpha{list-style-type:lower-alpha}.mw-parser-output .reflist-lower-greek{list-style-type:lower-greek}.mw-parser-output .reflist-lower-roman{list-style-type:lower-roman}</style><div class="reflist reflist-columns references-column-width" style="column-width: 30em;"> <ol class="references"> <li id="cite_note-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-1">^</a></b></span> <span class="reference-text"><style data-mw-deduplicate="TemplateStyles:r1238218222">.mw-parser-output cite.citation{font-style:inherit;word-wrap:break-word}.mw-parser-output .citation q{quotes:"\"""\"""'""'"}.mw-parser-output .citation:target{background-color:rgba(0,127,255,0.133)}.mw-parser-output .id-lock-free.id-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/6/65/Lock-green.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-limited.id-lock-limited a,.mw-parser-output .id-lock-registration.id-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/d/d6/Lock-gray-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-subscription.id-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/a/aa/Lock-red-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .cs1-ws-icon a{background:url("//upload.wikimedia.org/wikipedia/commons/4/4c/Wikisource-logo.svg")right 0.1em center/12px no-repeat}body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-free a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-limited a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-registration a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-subscription a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .cs1-ws-icon a{background-size:contain;padding:0 1em 0 0}.mw-parser-output .cs1-code{color:inherit;background:inherit;border:none;padding:inherit}.mw-parser-output .cs1-hidden-error{display:none;color:var(--color-error,#d33)}.mw-parser-output .cs1-visible-error{color:var(--color-error,#d33)}.mw-parser-output .cs1-maint{display:none;color:#085;margin-left:0.3em}.mw-parser-output .cs1-kern-left{padding-left:0.2em}.mw-parser-output .cs1-kern-right{padding-right:0.2em}.mw-parser-output .citation .mw-selflink{font-weight:inherit}@media screen{.mw-parser-output .cs1-format{font-size:95%}html.skin-theme-clientpref-night .mw-parser-output .cs1-maint{color:#18911f}}@media screen and (prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .cs1-maint{color:#18911f}}</style><cite id="CITEREFDurbin2011" class="citation book cs1">Durbin, Michael (2011). <i>All About Derivatives: The Easy Way to Get Started</i> (2nd ed.). New York: McGraw-Hill Education LLC. p. 1. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-07-174351-8" title="Special:BookSources/978-0-07-174351-8"><bdi>978-0-07-174351-8</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=All+About+Derivatives%3A+The+Easy+Way+to+Get+Started&rft.place=New+York&rft.pages=1&rft.edition=2nd&rft.pub=McGraw-Hill+Education+LLC&rft.date=2011&rft.isbn=978-0-07-174351-8&rft.aulast=Durbin&rft.aufirst=Michael&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-2">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation report cs1"><a rel="nofollow" class="external text" href="https://occ.gov/topics/supervision-and-examination/capital-markets/financial-markets/derivatives/index-derivatives.html">Derivatives</a> (Report). <a href="/wiki/Office_of_the_Comptroller_of_the_Currency" title="Office of the Comptroller of the Currency">Office of the Comptroller of the Currency</a>, <a href="/wiki/U.S._Department_of_Treasury" class="mw-redirect" title="U.S. Department of Treasury">U.S. Department of Treasury</a><span class="reference-accessdate">. Retrieved <span class="nowrap">February 15,</span> 2013</span>. <q>A derivative is a financial contract whose value is derived from the performance of some underlying market factors, such as interest rates, currency exchange rates, and commodity, credit, or equity prices. Derivative transactions include an assortment of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations thereof.</q></cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=report&rft.btitle=Derivatives&rft.pub=Office+of+the+Comptroller+of+the+Currency%2C+U.S.+Department+of+Treasury&rft_id=https%3A%2F%2Focc.gov%2Ftopics%2Fsupervision-and-examination%2Fcapital-markets%2Ffinancial-markets%2Fderivatives%2Findex-derivatives.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://www.investopedia.com/terms/d/derivative.asp">"Derivative Definition"</a>, <a href="/wiki/Investopedia" title="Investopedia">Investopedia</a></span> </li> <li id="cite_note-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-4">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFKoehler2011" class="citation ssrn cs1">Koehler, Christian (May 31, 2011). "The Relationship between the Complexity of Financial Derivatives and Systemic Risk". pp. <span class="nowrap">10–</span>11. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511541">2511541</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=preprint&rft.jtitle=Social+Science+Research+Network&rft.atitle=The+Relationship+between+the+Complexity+of+Financial+Derivatives+and+Systemic+Risk&rft.pages=%3Cspan+class%3D%22nowrap%22%3E10-%3C%2Fspan%3E11&rft.date=2011-05-31&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D2511541%23id-name%3DSSRN&rft.aulast=Koehler&rft.aufirst=Christian&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFTurvey2001" class="citation journal cs1">Turvey, Calum G. (Autumn–Winter 2001). <a rel="nofollow" class="external text" href="http://www.jstor.org/stable/1349952">"Weather Derivatives for Specific Event Risks in Agriculture"</a>. <i>Review of Agricultural Economics</i>. <b>23</b> (2): <span class="nowrap">333–</span>351. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1111%2F1467-9353.00065">10.1111/1467-9353.00065</a>. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/1349952">1349952</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Review+of+Agricultural+Economics&rft.atitle=Weather+Derivatives+for+Specific+Event+Risks+in+Agriculture&rft.chron=fall%E2%80%93winter&rft.volume=23&rft.issue=2&rft.pages=%3Cspan+class%3D%22nowrap%22%3E333-%3C%2Fspan%3E351&rft.date=2001&rft_id=info%3Adoi%2F10.1111%2F1467-9353.00065&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F1349952%23id-name%3DJSTOR&rft.aulast=Turvey&rft.aufirst=Calum+G.&rft_id=http%3A%2F%2Fwww.jstor.org%2Fstable%2F1349952&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-6"><span class="mw-cite-backlink"><b><a href="#cite_ref-6">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFDurbin_op_cit" class="citation book cs1">Durbin op cit. p. 1.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.pages=1&rft.au=Durbin+op+cit&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span> <span class="cs1-visible-error citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_book" title="Template:Cite book">cite book</a>}}</code>: </span><span class="cs1-visible-error citation-comment">Missing or empty <code class="cs1-code">|title=</code> (<a href="/wiki/Help:CS1_errors#citation_missing_title" title="Help:CS1 errors">help</a>)</span></span> </li> <li id="cite_note-7"><span class="mw-cite-backlink"><b><a href="#cite_ref-7">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFDurbin_op_cit" class="citation book cs1">Durbin op cit. p. 59.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.pages=59&rft.au=Durbin+op+cit&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span> <span class="cs1-visible-error citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_book" title="Template:Cite book">cite book</a>}}</code>: </span><span class="cs1-visible-error citation-comment">Missing or empty <code class="cs1-code">|title=</code> (<a href="/wiki/Help:CS1_errors#citation_missing_title" title="Help:CS1 errors">help</a>)</span></span> </li> <li id="cite_note-8"><span class="mw-cite-backlink"><b><a href="#cite_ref-8">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFCrawfordSen1996" class="citation book cs1">Crawford, George; Sen, Bidyut (1996). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=NIIVeirctosC&pg=PA7"><i>Derivatives for Decision Makers: Strategic Management Issues</i></a>. John Wiley & Sons. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9780471129943" title="Special:BookSources/9780471129943"><bdi>9780471129943</bdi></a><span class="reference-accessdate">. Retrieved <span class="nowrap">June 15,</span> 2016</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Derivatives+for+Decision+Makers%3A+Strategic+Management+Issues&rft.pub=John+Wiley+%26+Sons&rft.date=1996&rft.isbn=9780471129943&rft.aulast=Crawford&rft.aufirst=George&rft.au=Sen%2C+Bidyut&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DNIIVeirctosC%26pg%3DPA7&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-hull-9"><span class="mw-cite-backlink">^ <a href="#cite_ref-hull_9-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-hull_9-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-hull_9-2"><sup><i><b>c</b></i></sup></a> <a href="#cite_ref-hull_9-3"><sup><i><b>d</b></i></sup></a> <a href="#cite_ref-hull_9-4"><sup><i><b>e</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFHull2006" class="citation book cs1">Hull, John C. (2006). <i>Options, Futures and another Derivatives</i> (6th ed.). New Jersey: Prentice Hall. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0131499089" title="Special:BookSources/978-0131499089"><bdi>978-0131499089</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Options%2C+Futures+and+another+Derivatives&rft.place=New+Jersey&rft.edition=6th&rft.pub=Prentice+Hall&rft.date=2006&rft.isbn=978-0131499089&rft.aulast=Hull&rft.aufirst=John+C.&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-10"><span class="mw-cite-backlink"><b><a href="#cite_ref-10">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFMark_Rubinstein1999" class="citation book cs1"><a href="/wiki/Mark_Rubinstein" title="Mark Rubinstein">Mark Rubinstein</a> (1999). <i>Rubinstein on Derivatives</i>. 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"The Relationship between the Complexity of Financial Derivatives and Systemic Risk". p. 10. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511541">2511541</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=preprint&rft.jtitle=Social+Science+Research+Network&rft.atitle=The+Relationship+between+the+Complexity+of+Financial+Derivatives+and+Systemic+Risk&rft.pages=10&rft.date=2011-05-31&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D2511541%23id-name%3DSSRN&rft.aulast=Koehler&rft.aufirst=Christian&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-Rice_FT-12"><span class="mw-cite-backlink"><b><a href="#cite_ref-Rice_FT_12-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFKaori_SuzukiDavid_Turner2005" class="citation news cs1">Kaori Suzuki; David Turner (December 10, 2005). <a rel="nofollow" class="external text" href="https://www.ft.com/cms/s/0/d9f45d80-6922-11da-bd30-0000779e2340.html">"Sensitive politics over Japan's staple crop delays rice futures plan"</a>. <i><a href="/wiki/The_Financial_Times" class="mw-redirect" title="The Financial Times">The Financial Times</a></i><span class="reference-accessdate">. Retrieved <span class="nowrap">October 23,</span> 2010</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Financial+Times.&rft.atitle=Sensitive+politics+over+Japan%27s+staple+crop+delays+rice+futures+plan&rft.date=2005-12-10&rft.au=Kaori+Suzuki&rft.au=David+Turner&rft_id=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fd9f45d80-6922-11da-bd30-0000779e2340.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-13"><span class="mw-cite-backlink"><b><a href="#cite_ref-13">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation news cs1"><a rel="nofollow" class="external text" href="http://www.economist.com/node/21552217">"Clear and Present Danger; Centrally cleared derivatives. (clearing houses)"</a>. <i>The Economist</i>. Economist Newspaper Ltd.<span style="font-size:0.95em; font-size:95%; color: var( --color-subtle, #555 )">(subscription required)</span>. April 12, 2012<span class="reference-accessdate">. Retrieved <span class="nowrap">May 10,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Economist&rft.atitle=Clear+and+Present+Danger%3B+Centrally+cleared+derivatives.+%28clearing+houses%29&rft.date=2012-04-12&rft_id=http%3A%2F%2Fwww.economist.com%2Fnode%2F21552217&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-14"><span class="mw-cite-backlink"><b><a href="#cite_ref-14">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.esma.europa.eu/press-news/esma-news/esma-data-analysis-values-eu-derivatives-market-%E2%82%AC660-trillion-central-clearing">"ESMA data analysis values EU derivatives market at €660 trillion with central clearing increasing significantly"</a>. <i>www.esma.europa.eu</i><span class="reference-accessdate">. Retrieved <span class="nowrap">October 19,</span> 2018</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=www.esma.europa.eu&rft.atitle=ESMA+data+analysis+values+EU+derivatives+market+at+%E2%82%AC660+trillion+with+central+clearing+increasing+significantly&rft_id=https%3A%2F%2Fwww.esma.europa.eu%2Fpress-news%2Fesma-news%2Fesma-data-analysis-values-eu-derivatives-market-%25E2%2582%25AC660-trillion-central-clearing&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-15"><span class="mw-cite-backlink"><b><a href="#cite_ref-15">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFLiuLejot2013" class="citation book cs1">Liu, Qiao; Lejot, Paul (2013). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=NOBLXqkicKMC&q=true+size+derivative+market&pg=PA337">"Debt, Derivatives and Complex Interactions."</a>. <i>Finance in Asia: Institutions, Regulation and Policy</i>. Douglas W. Arne. New York: Routledge. p. 343. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-415-42319-9" title="Special:BookSources/978-0-415-42319-9"><bdi>978-0-415-42319-9</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=bookitem&rft.atitle=Debt%2C+Derivatives+and+Complex+Interactions.&rft.btitle=Finance+in+Asia%3A+Institutions%2C+Regulation+and+Policy&rft.place=New+York&rft.pages=343&rft.pub=Routledge&rft.date=2013&rft.isbn=978-0-415-42319-9&rft.aulast=Liu&rft.aufirst=Qiao&rft.au=Lejot%2C+Paul&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DNOBLXqkicKMC%26q%3Dtrue%2Bsize%2Bderivative%2Bmarket%26pg%3DPA337&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-2012actual-16"><span class="mw-cite-backlink"><b><a href="#cite_ref-2012actual_16-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation book cs1"><a rel="nofollow" class="external text" href="http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf"><i>The Budget and Economic Outlook: Fiscal Years 2013 to 2023</i></a> <span class="cs1-format">(PDF)</span>. <a href="/wiki/Congressional_Budget_Office" title="Congressional Budget Office">Congressional Budget Office</a>. 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Retrieved <span class="nowrap">March 15,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=The+Budget+and+Economic+Outlook%3A+Fiscal+Years+2013+to+2023&rft.pub=Congressional+Budget+Office&rft.date=2013-02-05&rft_id=http%3A%2F%2Fwww.cbo.gov%2Fsites%2Fdefault%2Ffiles%2Fcbofiles%2Fattachments%2F43907-BudgetOutlook.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-17"><span class="mw-cite-backlink"><b><a href="#cite_ref-17">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation news cs1"><a rel="nofollow" class="external text" href="https://www.economist.com/news/finance-and-economics/21576681-big-battle-unfolding-over-even-bigger-market-swapping-bad-ideas">"Swapping bad ideas: A big battle is unfolding over an even bigger market"</a>. <i>The Economist</i>. 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Retrieved <span class="nowrap">May 10,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Economist&rft.atitle=World+GDP%3A+In+search+of+growth&rft.date=2011-05-25&rft_id=https%3A%2F%2Fwww.economist.com%2Fblogs%2Fdailychart%2F2011%2F05%2Fworld_gdp&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-19"><span class="mw-cite-backlink"><b><a href="#cite_ref-19">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation cs2"><a rel="nofollow" class="external text" href="http://news.bbc.co.uk/2/hi/2817995.stm"><i>Buffett warns on investment 'time bomb'<span></span></i></a>, BBC, March 4, 2003</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Buffett+warns+on+investment+%27time+bomb%27&rft.pub=BBC&rft.date=2003-03-04&rft_id=http%3A%2F%2Fnews.bbc.co.uk%2F2%2Fhi%2F2817995.stm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-20"><span class="mw-cite-backlink"><b><a href="#cite_ref-20">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFSheridan2008" class="citation web cs1">Sheridan, Barrett (April 2008). <a rel="nofollow" class="external text" href="https://www.questia.com/read/1G1-187503475">"600,000,000,000,000?"</a>. Newsweek Inc.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=600%2C000%2C000%2C000%2C000%3F&rft.pub=Newsweek+Inc.&rft.date=2008-04&rft.aulast=Sheridan&rft.aufirst=Barrett&rft_id=https%3A%2F%2Fwww.questia.com%2Fread%2F1G1-187503475&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span><sup class="noprint Inline-Template"><span style="white-space: nowrap;">[<i><a href="/wiki/Wikipedia:Link_rot" title="Wikipedia:Link rot"><span title=" Dead link tagged July 2021">dead link</span></a></i><span style="visibility:hidden; color:transparent; padding-left:2px">‍</span>]</span></sup></span> </li> <li id="cite_note-21"><span class="mw-cite-backlink"><b><a href="#cite_ref-21">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFKhullar2009" class="citation book cs1">Khullar, Sanjeev (2009). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=uv73DVVSgAsC">"Using Derivatives to Create Alpha"</a>. In John M. Longo (ed.). <i>Hedge Fund Alpha: A Framework for Generating and Understanding Investment Performance</i>. <a href="/wiki/Singapore" title="Singapore">Singapore</a>: <a href="/wiki/World_Scientific" title="World Scientific">World Scientific</a>. p. 105. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-981-283-465-2" title="Special:BookSources/978-981-283-465-2"><bdi>978-981-283-465-2</bdi></a><span class="reference-accessdate">. Retrieved <span class="nowrap">September 14,</span> 2011</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=bookitem&rft.atitle=Using+Derivatives+to+Create+Alpha&rft.btitle=Hedge+Fund+Alpha%3A+A+Framework+for+Generating+and+Understanding+Investment+Performance&rft.place=Singapore&rft.pages=105&rft.pub=World+Scientific&rft.date=2009&rft.isbn=978-981-283-465-2&rft.aulast=Khullar&rft.aufirst=Sanjeev&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3Duv73DVVSgAsC&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-22"><span class="mw-cite-backlink"><b><a href="#cite_ref-22">^</a></b></span> <span class="reference-text">Lemke and Lins, <i>Soft Dollars and Other Trading Activities</i>, §§2:47–2:54 (Thomson West, 2013–2014 ed.).</span> </li> <li id="cite_note-23"><span class="mw-cite-backlink"><b><a href="#cite_ref-23">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFDon_M._ChanceRobert_Brooks2010" class="citation book cs1">Don M. Chance; Robert Brooks (2010). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=DT0nnLDMYTgC">"Advanced Derivatives and Strategies"</a>. <i>Introduction to Derivatives and Risk Management</i> (8th ed.). <a href="/wiki/Mason,_OH" class="mw-redirect" title="Mason, OH">Mason, OH</a>: <a href="/wiki/Cengage_Learning" class="mw-redirect" title="Cengage Learning">Cengage Learning</a>. pp. <span class="nowrap">483–</span>515. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-324-60120-6" title="Special:BookSources/978-0-324-60120-6"><bdi>978-0-324-60120-6</bdi></a><span class="reference-accessdate">. Retrieved <span class="nowrap">September 14,</span> 2011</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=bookitem&rft.atitle=Advanced+Derivatives+and+Strategies&rft.btitle=Introduction+to+Derivatives+and+Risk+Management&rft.place=Mason%2C+OH&rft.pages=%3Cspan+class%3D%22nowrap%22%3E483-%3C%2Fspan%3E515&rft.edition=8th&rft.pub=Cengage+Learning&rft.date=2010&rft.isbn=978-0-324-60120-6&rft.au=Don+M.+Chance&rft.au=Robert+Brooks&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DDT0nnLDMYTgC&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-24"><span class="mw-cite-backlink"><b><a href="#cite_ref-24">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFShirreff2004" class="citation book cs1">Shirreff, David (2004). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=mwirEO_f1DkC">"Derivatives and leverage"</a>. <a rel="nofollow" class="external text" href="https://archive.org/details/dealingwithfinan0000shir/page/23"><i>Dealing With Financial Risk</i></a>. The Economist. p. <a rel="nofollow" class="external text" href="https://archive.org/details/dealingwithfinan0000shir/page/23">23</a>. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-1-57660-162-4" title="Special:BookSources/978-1-57660-162-4"><bdi>978-1-57660-162-4</bdi></a><span class="reference-accessdate">. Retrieved <span class="nowrap">September 14,</span> 2011</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=bookitem&rft.atitle=Derivatives+and+leverage&rft.btitle=Dealing+With+Financial+Risk&rft.pages=23&rft.pub=The+Economist&rft.date=2004&rft.isbn=978-1-57660-162-4&rft.aulast=Shirreff&rft.aufirst=David&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DmwirEO_f1DkC&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-25"><span class="mw-cite-backlink"><b><a href="#cite_ref-25">^</a></b></span> <span class="reference-text">Hull, John C. (2014). "Options, Futures, and Other Derivatives (9th Edition)", Pearson, pp. 16–17. <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/0133456315" title="Special:BookSources/0133456315">0133456315</a></span> </li> <li id="cite_note-26"><span class="mw-cite-backlink"><b><a href="#cite_ref-26">^</a></b></span> <span class="reference-text">Peterson, Sam (2010), <a rel="nofollow" class="external text" href="https://www.theatlantic.com/business/archive/2010/07/theres-a-derivative-in-your-cereal/60582">"There's a Derivative in Your Cereal"</a>, <i>The Atlantic</i>.</span> </li> <li id="cite_note-27"><span class="mw-cite-backlink"><b><a href="#cite_ref-27">^</a></b></span> <span class="reference-text">Chisolm, Derivatives Demystified (Wiley 2004)</span> </li> <li id="cite_note-28"><span class="mw-cite-backlink"><b><a href="#cite_ref-28">^</a></b></span> <span class="reference-text">Chisolm, <i>Derivatives Demystified</i> (Wiley 2004) Notional sum means there is no actual principal.</span> </li> <li id="cite_note-lee-29"><span class="mw-cite-backlink"><b><a href="#cite_ref-lee_29-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://news.bbc.co.uk/2/hi/business/375259.stm">"How Leeson broke the bank"</a>, <i>BBC Economy</i></span> </li> <li id="cite_note-30"><span class="mw-cite-backlink"><b><a href="#cite_ref-30">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFSergey_ChernenkoMichael_Faulkender2011" class="citation journal cs1">Sergey Chernenko; Michael Faulkender (December 2011). "The Two Sides of Derivatives Usage: Hedging and Speculating with Interest Rate Swaps". <i>The Journal of Financial and Quantitative Analysis</i>. <b>46</b> (6): <span class="nowrap">1727–</span>1754. <a href="/wiki/CiteSeerX_(identifier)" class="mw-redirect" title="CiteSeerX (identifier)">CiteSeerX</a> <span class="id-lock-free" title="Freely accessible"><a rel="nofollow" class="external text" href="https://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.422.7302">10.1.1.422.7302</a></span>. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1017%2FS0022109011000391">10.1017/S0022109011000391</a>. <a href="/wiki/S2CID_(identifier)" class="mw-redirect" title="S2CID (identifier)">S2CID</a> <a rel="nofollow" class="external text" href="https://api.semanticscholar.org/CorpusID:13928534">13928534</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Journal+of+Financial+and+Quantitative+Analysis&rft.atitle=The+Two+Sides+of+Derivatives+Usage%3A+Hedging+and+Speculating+with+Interest+Rate+Swaps&rft.volume=46&rft.issue=6&rft.pages=%3Cspan+class%3D%22nowrap%22%3E1727-%3C%2Fspan%3E1754&rft.date=2011-12&rft_id=https%3A%2F%2Fciteseerx.ist.psu.edu%2Fviewdoc%2Fsummary%3Fdoi%3D10.1.1.422.7302%23id-name%3DCiteSeerX&rft_id=https%3A%2F%2Fapi.semanticscholar.org%2FCorpusID%3A13928534%23id-name%3DS2CID&rft_id=info%3Adoi%2F10.1017%2FS0022109011000391&rft.au=Sergey+Chernenko&rft.au=Michael+Faulkender&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-31"><span class="mw-cite-backlink"><b><a href="#cite_ref-31">^</a></b></span> <span class="reference-text">Knowledge@Wharton (2012). <a rel="nofollow" class="external text" href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=709">"The Changing Use of Derivatives: More Hedging, Less Speculation"</a></span> </li> <li id="cite_note-32"><span class="mw-cite-backlink"><b><a href="#cite_ref-32">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFGuayKothari2001" class="citation ssrn cs1">Guay, Wayne R.; Kothari, S.P. (2001). "How Much do Firms Hedge with Derivatives?". <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=253036">253036</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=preprint&rft.jtitle=Social+Science+Research+Network&rft.atitle=How+Much+do+Firms+Hedge+with+Derivatives%3F&rft.date=2001&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D253036%23id-name%3DSSRN&rft.aulast=Guay&rft.aufirst=Wayne+R.&rft.au=Kothari%2C+S.P.&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-knowledge.wharton.upenn.edu-33"><span class="mw-cite-backlink">^ <a href="#cite_ref-knowledge.wharton.upenn.edu_33-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-knowledge.wharton.upenn.edu_33-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Knowledge@Wharton (2006). <a rel="nofollow" class="external text" href="http://knowledge.wharton.upenn.edu/article.cfm?articleid=1346">"The Role of Derivatives in Corporate Finances: Are Firms Betting the Ranch?"</a></span> </li> <li id="cite_note-BIS2007-34"><span class="mw-cite-backlink">^ <a href="#cite_ref-BIS2007_34-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-BIS2007_34-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-BIS2007_34-2"><sup><i><b>c</b></i></sup></a> <a href="#cite_ref-BIS2007_34-3"><sup><i><b>d</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFRyan_SteverChristian_UpperGoetz_von_Peter2007" class="citation report cs1">Ryan Stever; Christian Upper; Goetz von Peter (December 2007). <a rel="nofollow" class="external text" href="http://www.bis.org/publ/qtrpdf/r_qt0712.pdf">BIS Quarterly Review</a> <span class="cs1-format">(PDF)</span> (Report). Bank for International Settlements.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=report&rft.btitle=BIS+Quarterly+Review&rft.pub=Bank+for+International+Settlements&rft.date=2007-12&rft.au=Ryan+Stever&rft.au=Christian+Upper&rft.au=Goetz+von+Peter&rft_id=http%3A%2F%2Fwww.bis.org%2Fpubl%2Fqtrpdf%2Fr_qt0712.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-afgh-35"><span class="mw-cite-backlink"><b><a href="#cite_ref-afgh_35-0">^</a></b></span> <span class="reference-text">BIS survey: The <a href="/wiki/Bank_for_International_Settlements" title="Bank for International Settlements">Bank for International Settlements</a> (BIS) semi-annual <a rel="nofollow" class="external text" href="http://www.bis.org/publ/otc_hy1111.pdf">OTC derivatives market report</a>, for end of June 2008, showed US$683.7 trillion total <a href="/wiki/Notional_amount" title="Notional amount">notional amounts</a> outstanding of OTC derivatives with a <a href="/w/index.php?title=Gross_market_value&action=edit&redlink=1" class="new" title="Gross market value (page does not exist)">gross market value</a> of US$20 trillion. <i>See also <a rel="nofollow" class="external text" href="http://www.bis.org/publ/otc_hy1111.htm">Prior Period Regular OTC Derivatives Market Statistics</a></i>.</span> </li> <li id="cite_note-foweek-36"><span class="mw-cite-backlink"><b><a href="#cite_ref-foweek_36-0">^</a></b></span> <span class="reference-text"><i>Futures and Options Week</i>: According to figures published in F&O Week October 10, 2005. See also <a rel="nofollow" class="external text" href="http://www.fow.com">FOW Website</a>.</span> </li> <li id="cite_note-37"><span class="mw-cite-backlink"><b><a href="#cite_ref-37">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFMorris" class="citation web cs1">Morris, Jason. <a rel="nofollow" class="external text" href="https://www.investopedia.com/ask/answers/102815/are-etfs-considered-derivatives.asp">"Are ETFs Considered Derivatives?"</a>. <i>Investopedia</i><span class="reference-accessdate">. Retrieved <span class="nowrap">March 23,</span> 2020</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=Investopedia&rft.atitle=Are+ETFs+Considered+Derivatives%3F&rft.aulast=Morris&rft.aufirst=Jason&rft_id=https%3A%2F%2Fwww.investopedia.com%2Fask%2Fanswers%2F102815%2Fare-etfs-considered-derivatives.asp&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-38"><span class="mw-cite-backlink"><b><a href="#cite_ref-38">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20110830112932/http://nseindia.com/education/content/module_ncfm.htm">"Financial Markets: A Beginner's Module"</a>. Archived from <a rel="nofollow" class="external text" href="https://www.nseindia.com/education/content/module_ncfm.htm">the original</a> on August 30, 2011<span class="reference-accessdate">. Retrieved <span class="nowrap">October 12,</span> 2011</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Financial+Markets%3A+A+Beginner%27s+Module&rft_id=http%3A%2F%2Fwww.nseindia.com%2Feducation%2Fcontent%2Fmodule_ncfm.htm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-39"><span class="mw-cite-backlink"><b><a href="#cite_ref-39">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFVink" class="citation web cs1">Vink, Dennis. <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/10381/2/MPRA_paper_10381.pdf">"ABS, MBS and CDO compared: An empirical analysis"</a> <span class="cs1-format">(PDF)</span>. <i>August 2007</i>. Munich Personal RePEc Archive<span class="reference-accessdate">. Retrieved <span class="nowrap">July 13,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=August+2007&rft.atitle=ABS%2C+MBS+and+CDO+compared%3A+An+empirical+analysis&rft.aulast=Vink&rft.aufirst=Dennis&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F10381%2F2%2FMPRA_paper_10381.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> <li id="cite_note-40"><span class="mw-cite-backlink"><b><a href="#cite_ref-40">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFVink" class="citation web cs1">Vink, Dennis. <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/10381/2/MPRA_paper_10381.pdf">"ABS, MBS and CDO compared: An empirical analysis"</a> <span class="cs1-format">(PDF)</span>. <i>August 2007</i>. Munich Personal RePEc Archive<span class="reference-accessdate">. Retrieved <span class="nowrap">July 13,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=August+2007&rft.atitle=ABS%2C+MBS+and+CDO+compared%3A+An+empirical+analysis&rft.aulast=Vink&rft.aufirst=Dennis&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F10381%2F2%2FMPRA_paper_10381.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span>; see also <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20180629101514/http://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=16&id=10#sthash.roSaSia3.dpuf">"What are Asset-Backed Securities?"</a>. SIFMA. Archived from <a rel="nofollow" class="external text" href="http://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=16&id=10#sthash.roSaSia3.dpuf">the original</a> on June 29, 2018<span class="reference-accessdate">. Retrieved <span class="nowrap">July 13,</span> 2013</span>. <q>Asset-backed securities, called ABS, are bonds or notes backed by financial assets. Typically these assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans.</q></cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=What+are+Asset-Backed+Securities%3F&rft.pub=SIFMA&rft_id=http%3A%2F%2Fwww.investinginbonds.com%2Flearnmore.asp%3Fcatid%3D5%26subcatid%3D16%26id%3D10%23sthash.roSaSia3.dpuf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span>)</span> </li> <li id="cite_note-Lemke_2013-41"><span class="mw-cite-backlink"><b><a href="#cite_ref-Lemke_2013_41-0">^</a></b></span> <span class="reference-text">Lemke, Lins and Picard, <i>Mortgage-Backed Securities</i>, §5:15 (Thomson West, 2014).</span> </li> <li id="cite_note-42"><span class="mw-cite-backlink"><b><a href="#cite_ref-42">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFKoehler2011" class="citation journal cs1">Koehler, Christian (May 31, 2011). 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Retrieved <span class="nowrap">March 5,</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Derivatives+trades+will+be+tracked+by+Depository+Trust&rft.pub=Futuresmag.com&rft.date=2010-08-05&rft.aulast=Release&rft.aufirst=Press&rft_id=http%3A%2F%2Fwww.futuresmag.com%2F2010%2F08%2F05%2Fderivatives-trades-will-be-tracked-by-depository-t&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></span> </li> </ol></div> <div class="mw-heading mw-heading2"><h2 id="Further_reading">Further reading</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=35" title="Edit section: Further reading"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFSöhnke_M._BartramBrown,_Gregory_W.Conrad,_Jennifer_C.2011" class="citation journal cs1">Söhnke M. Bartram; Brown, Gregory W.; Conrad, Jennifer C. (August 2011). <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/9831/1/MPRA_paper_9831.pdf">"The Effects of Derivatives on Firm Risk and Value"</a> <span class="cs1-format">(PDF)</span>. <i>Journal of Financial and Quantitative Analysis</i>. <b>46</b> (4): <span class="nowrap">967–</span>999. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1017%2Fs0022109011000275">10.1017/s0022109011000275</a>. <a href="/wiki/S2CID_(identifier)" class="mw-redirect" title="S2CID (identifier)">S2CID</a> <a rel="nofollow" class="external text" href="https://api.semanticscholar.org/CorpusID:3945906">3945906</a>. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1550942">1550942</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Journal+of+Financial+and+Quantitative+Analysis&rft.atitle=The+Effects+of+Derivatives+on+Firm+Risk+and+Value&rft.volume=46&rft.issue=4&rft.pages=%3Cspan+class%3D%22nowrap%22%3E967-%3C%2Fspan%3E999&rft.date=2011-08&rft_id=https%3A%2F%2Fapi.semanticscholar.org%2FCorpusID%3A3945906%23id-name%3DS2CID&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D1550942%23id-name%3DSSRN&rft_id=info%3Adoi%2F10.1017%2Fs0022109011000275&rft.au=S%C3%B6hnke+M.+Bartram&rft.au=Brown%2C+Gregory+W.&rft.au=Conrad%2C+Jennifer+C.&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F9831%2F1%2FMPRA_paper_9831.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFSöhnke_M._BartramKevin_Aretz2010" class="citation journal cs1">Söhnke M. Bartram; Kevin Aretz (Winter 2010). <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/14088/1/MPRA_paper_14088.pdf">"Corporate Hedging and Shareholder Value"</a> <span class="cs1-format">(PDF)</span>. <i>Journal of Financial Research</i>. <b>33</b> (4): <span class="nowrap">317–</span>371. <a href="/wiki/CiteSeerX_(identifier)" class="mw-redirect" title="CiteSeerX (identifier)">CiteSeerX</a> <span class="id-lock-free" title="Freely accessible"><a rel="nofollow" class="external text" href="https://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.534.728">10.1.1.534.728</a></span>. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1111%2Fj.1475-6803.2010.01278.x">10.1111/j.1475-6803.2010.01278.x</a>. <a href="/wiki/S2CID_(identifier)" class="mw-redirect" title="S2CID (identifier)">S2CID</a> <a rel="nofollow" class="external text" href="https://api.semanticscholar.org/CorpusID:20087872">20087872</a>. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1354149">1354149</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Journal+of+Financial+Research&rft.atitle=Corporate+Hedging+and+Shareholder+Value&rft.ssn=winter&rft.volume=33&rft.issue=4&rft.pages=%3Cspan+class%3D%22nowrap%22%3E317-%3C%2Fspan%3E371&rft.date=2010&rft_id=https%3A%2F%2Fciteseerx.ist.psu.edu%2Fviewdoc%2Fsummary%3Fdoi%3D10.1.1.534.728%23id-name%3DCiteSeerX&rft_id=https%3A%2F%2Fapi.semanticscholar.org%2FCorpusID%3A20087872%23id-name%3DS2CID&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D1354149%23id-name%3DSSRN&rft_id=info%3Adoi%2F10.1111%2Fj.1475-6803.2010.01278.x&rft.au=S%C3%B6hnke+M.+Bartram&rft.au=Kevin+Aretz&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F14088%2F1%2FMPRA_paper_14088.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFSöhnke_M._BartramGregory_W._BrownFrank_R._Fehle2009" class="citation journal cs1">Söhnke M. 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Washington, D.C.: Institute for Financial Markets. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-615-35082-0" title="Special:BookSources/978-0-615-35082-0"><bdi>978-0-615-35082-0</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Futures+and+Options&rft.place=Washington%2C+D.C.&rft.edition=2nd&rft.pub=Institute+for+Financial+Markets&rft.date=2011&rft.isbn=978-0-615-35082-0&rft.au=Institute+for+Financial+Markets&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFJohn_C._Hull2011" class="citation book cs1">John C. Hull (2011). <i>Options, Futures and Other Derivatives</i> (8th ed.). Harlow: Pearson Education. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-13-260460-4" title="Special:BookSources/978-0-13-260460-4"><bdi>978-0-13-260460-4</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Options%2C+Futures+and+Other+Derivatives&rft.place=Harlow&rft.edition=8th&rft.pub=Pearson+Education&rft.date=2011&rft.isbn=978-0-13-260460-4&rft.au=John+C.+Hull&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFMichael_Durbin2011" class="citation book cs1">Michael Durbin (2011). <i>All About Derivatives</i> (2nd ed.). New York: McGraw-Hill. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-07-174351-8" title="Special:BookSources/978-0-07-174351-8"><bdi>978-0-07-174351-8</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=All+About+Derivatives&rft.place=New+York&rft.edition=2nd&rft.pub=McGraw-Hill&rft.date=2011&rft.isbn=978-0-07-174351-8&rft.au=Michael+Durbin&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFMehraj_Mattoo1997" class="citation book cs1">Mehraj Mattoo (1997). <i>Structured Derivatives: New Tools for Investment Management: A Handbook of Structuring, Pricing & Investor Applications</i>. London: Financial Times. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-273-61120-2" title="Special:BookSources/978-0-273-61120-2"><bdi>978-0-273-61120-2</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Structured+Derivatives%3A+New+Tools+for+Investment+Management%3A+A+Handbook+of+Structuring%2C+Pricing+%26+Investor+Applications&rft.place=London&rft.pub=Financial+Times&rft.date=1997&rft.isbn=978-0-273-61120-2&rft.au=Mehraj+Mattoo&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFAndrei_N._Soklakov2013" class="citation arxiv cs1">Andrei N. Soklakov (2013). "Elasticity Theory of Structuring". <a href="/wiki/ArXiv_(identifier)" class="mw-redirect" title="ArXiv (identifier)">arXiv</a>:<span class="id-lock-free" title="Freely accessible"><a rel="nofollow" class="external text" href="https://arxiv.org/abs/1304.7535">1304.7535</a></span> [<a rel="nofollow" class="external text" href="https://arxiv.org/archive/q-fin.GN">q-fin.GN</a>].</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=preprint&rft.jtitle=arXiv&rft.atitle=Elasticity+Theory+of+Structuring&rft.date=2013&rft_id=info%3Aarxiv%2F1304.7535&rft.au=Andrei+N.+Soklakov&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222" /><cite id="CITEREFAndrei_N._Soklakov2013" class="citation ssrn cs1">Andrei N. Soklakov (2013). "Deriving Derivatives". <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2262941">2262941</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=preprint&rft.jtitle=Social+Science+Research+Network&rft.atitle=Deriving+Derivatives&rft.date=2013&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D2262941%23id-name%3DSSRN&rft.au=Andrei+N.+Soklakov&rfr_id=info%3Asid%2Fen.wikipedia.org%3ADerivative+%28finance%29" class="Z3988"></span></li> <li>Nassim N. Taleb (1996). “Dynamic Hedging: Managing Vanilla and Exotic Options”. Wiley.</li></ul> <div class="mw-heading mw-heading2"><h2 id="External_links">External links</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Derivative_(finance)&action=edit&section=36" title="Edit section: External links"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a rel="nofollow" class="external text" href="https://www.chicagofed.org/publications/understanding-derivatives/index"><i>Understanding Derivatives: Markets and Infrastructure</i></a> (<a href="/wiki/Federal_Reserve_Bank_of_Chicago" title="Federal Reserve Bank of Chicago">Federal Reserve Bank of Chicago</a>)</li> <li><a rel="nofollow" class="external text" href="http://news.bbc.co.uk/1/hi/business/2190776.stm">"Derivatives simple guide"</a>, BBC News</li> <li><a rel="nofollow" class="external text" href="https://www.cfainstitute.org/-/media/documents/support/programs/investment-foundations/11-derivatives.ashx?la=en&hash=6BA234D6843721715BA6CB45332CE2D90FC1D75C"><i>Investment-foundations: Derivatives</i></a>. <a rel="nofollow" class="external text" href="https://web.archive.org/web/20201027181218/https://www.cfainstitute.org/-/media/documents/support/programs/investment-foundations/11-derivatives.ashx?la=en&hash=6BA234D6843721715BA6CB45332CE2D90FC1D75C">Archived</a> October 27, 2020, at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a>. <a href="/wiki/CFA_Institute" title="CFA Institute">CFA Institute</a>.</li> <li><a rel="nofollow" class="external text" href="https://web.archive.org/web/20140219012612/http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm">"European Union proposals on derivatives regulation – 2008 onwards"</a> (archived 19 February 2014)</li> <li><a rel="nofollow" class="external text" href="http://www.pwc.com/us/en/financial-services/regulatory-services/publications/derivatives-regulatory-roulette.jhtml">" Derivatives Regulatory Roulette"</a>, PwC Financial Services Regulatory Practice (December 2013)</li></ul> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374" /><style data-mw-deduplicate="TemplateStyles:r1236075235">.mw-parser-output .navbox{box-sizing:border-box;border:1px solid #a2a9b1;width:100%;clear:both;font-size:88%;text-align:center;padding:1px;margin:1em auto 0}.mw-parser-output .navbox .navbox{margin-top:0}.mw-parser-output .navbox+.navbox,.mw-parser-output .navbox+.navbox-styles+.navbox{margin-top:-1px}.mw-parser-output .navbox-inner,.mw-parser-output .navbox-subgroup{width:100%}.mw-parser-output .navbox-group,.mw-parser-output .navbox-title,.mw-parser-output .navbox-abovebelow{padding:0.25em 1em;line-height:1.5em;text-align:center}.mw-parser-output .navbox-group{white-space:nowrap;text-align:right}.mw-parser-output .navbox,.mw-parser-output .navbox-subgroup{background-color:#fdfdfd}.mw-parser-output .navbox-list{line-height:1.5em;border-color:#fdfdfd}.mw-parser-output .navbox-list-with-group{text-align:left;border-left-width:2px;border-left-style:solid}.mw-parser-output tr+tr>.navbox-abovebelow,.mw-parser-output tr+tr>.navbox-group,.mw-parser-output tr+tr>.navbox-image,.mw-parser-output tr+tr>.navbox-list{border-top:2px solid #fdfdfd}.mw-parser-output .navbox-title{background-color:#ccf}.mw-parser-output .navbox-abovebelow,.mw-parser-output .navbox-group,.mw-parser-output .navbox-subgroup .navbox-title{background-color:#ddf}.mw-parser-output .navbox-subgroup .navbox-group,.mw-parser-output .navbox-subgroup .navbox-abovebelow{background-color:#e6e6ff}.mw-parser-output .navbox-even{background-color:#f7f7f7}.mw-parser-output .navbox-odd{background-color:transparent}.mw-parser-output .navbox .hlist td dl,.mw-parser-output .navbox .hlist td ol,.mw-parser-output .navbox .hlist td ul,.mw-parser-output .navbox td.hlist dl,.mw-parser-output .navbox td.hlist ol,.mw-parser-output .navbox td.hlist ul{padding:0.125em 0}.mw-parser-output .navbox .navbar{display:block;font-size:100%}.mw-parser-output .navbox-title .navbar{float:left;text-align:left;margin-right:0.5em}body.skin--responsive .mw-parser-output .navbox-image img{max-width:none!important}@media print{body.ns-0 .mw-parser-output .navbox{display:none!important}}</style><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374" /></div><div role="navigation" class="navbox" aria-labelledby="Derivatives_market428" style="padding:3px"><table class="nowraplinks hlist mw-collapsible autocollapse navbox-inner" style="border-spacing:0;background:transparent;color:inherit"><tbody><tr><th scope="col" class="navbox-title" colspan="2"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374" /><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1239400231" /><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Derivatives_market" title="Template:Derivatives market"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Derivatives_market" title="Template talk:Derivatives market"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Derivatives_market" title="Special:EditPage/Template:Derivatives market"><abbr title="Edit this template">e</abbr></a></li></ul></div><div id="Derivatives_market428" style="font-size:114%;margin:0 4em"><a href="/wiki/Derivatives_market" title="Derivatives market">Derivatives market</a></div></th></tr><tr><td class="navbox-abovebelow" colspan="2"><div><a class="mw-selflink selflink">Derivative (finance)</a></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Option_(finance)" title="Option (finance)">Options</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"></div><table class="nowraplinks navbox-subgroup" style="border-spacing:0"><tbody><tr><th scope="row" class="navbox-group" style="width:1%">Terms</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Delta_neutral" title="Delta neutral">Delta neutral</a></li> <li><a href="/wiki/Exercise_(options)" title="Exercise (options)">Exercise</a></li> <li><a href="/wiki/Expiration_(options)" title="Expiration (options)">Expiration</a></li> <li><a href="/wiki/Moneyness" title="Moneyness">Moneyness</a></li> <li><a href="/wiki/Open_interest" title="Open interest">Open interest</a></li> <li><a href="/wiki/Pin_risk" title="Pin risk">Pin risk</a></li> <li><a href="/wiki/Risk-free_interest_rate" class="mw-redirect" title="Risk-free interest rate">Risk-free interest rate</a></li> <li><a href="/wiki/Strike_price" title="Strike price">Strike price</a></li> <li><a href="/wiki/Synthetic_position" title="Synthetic position">Synthetic position</a></li> <li><a href="/wiki/Greeks_(finance)" title="Greeks (finance)">the Greeks</a></li> <li><a href="/wiki/Volatility_(finance)" title="Volatility (finance)">Volatility</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Vanilla_option" class="mw-redirect" title="Vanilla option">Vanillas</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/American_option" class="mw-redirect" title="American option">American</a></li> <li><a href="/wiki/Bond_option" title="Bond option">Bond option</a></li> <li><a href="/wiki/Call_option" title="Call option">Call</a></li> <li><a href="/wiki/Employee_stock_option" title="Employee stock option">Employee stock option</a></li> <li><a href="/wiki/European_option" class="mw-redirect" title="European option">European</a></li> <li><a href="/wiki/Fixed_income" title="Fixed income">Fixed income</a></li> <li><a href="/wiki/Foreign_exchange_option" title="Foreign exchange option">FX</a></li> <li><a href="/wiki/Option_style" title="Option style">Option styles</a></li> <li><a href="/wiki/Put_option" title="Put option">Put</a></li> <li><a href="/wiki/Warrant_(finance)" title="Warrant (finance)">Warrants</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Exotic_option" title="Exotic option">Exotics</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asian_option" title="Asian option">Asian</a></li> <li><a href="/wiki/Barrier_option" title="Barrier option">Barrier</a></li> <li><a href="/wiki/Basket_option" title="Basket option">Basket</a></li> <li><a href="/wiki/Binary_option" title="Binary option">Binary</a></li> <li><a href="/wiki/Callable_bull/bear_contract" title="Callable bull/bear contract">Callable bull/bear contract</a></li> <li><a href="/wiki/Chooser_option" title="Chooser option">Chooser</a></li> <li><a href="/wiki/Cliquet_option" title="Cliquet option">Cliquet</a></li> <li><a href="/wiki/Commodore_option" title="Commodore option">Commodore</a></li> <li><a href="/wiki/Compound_option" title="Compound option">Compound</a></li> <li><a href="/wiki/Forward_start_option" title="Forward start option">Forward start</a></li> <li><a href="/wiki/Interest_rate_option" title="Interest rate option">Interest rate</a></li> <li><a href="/wiki/Lookback_option" title="Lookback option">Lookback</a></li> <li>Mountain range</li> <li><a href="/wiki/Rainbow_option" title="Rainbow option">Rainbow</a></li> <li><a href="/wiki/Spread_option" title="Spread option">Spread</a></li> <li><a href="/wiki/Swaption" title="Swaption">Swaption</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Options_strategy" title="Options strategy">Strategies</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Backspread" title="Backspread">Backspread</a></li> <li><a href="/wiki/Box_spread_(options)" class="mw-redirect" title="Box spread (options)">Box spread</a></li> <li><a href="/wiki/Butterfly_(options)" title="Butterfly (options)">Butterfly</a></li> <li><a href="/wiki/Calendar_spread" title="Calendar spread">Calendar spread</a></li> <li><a href="/wiki/Collar_(finance)" title="Collar (finance)">Collar</a></li> <li><a href="/wiki/Condor_(options)" title="Condor (options)">Condor</a></li> <li><a href="/wiki/Covered_option" title="Covered option">Covered option</a></li> <li><a href="/wiki/Credit_spread_(options)" title="Credit spread (options)">Credit spread</a></li> <li><a href="/wiki/Debit_spread" title="Debit spread">Debit spread</a></li> <li><a href="/wiki/Diagonal_spread" title="Diagonal spread">Diagonal spread</a></li> <li><a href="/wiki/Fence_(finance)" title="Fence (finance)">Fence</a></li> <li><a href="/wiki/Intermarket_spread" title="Intermarket spread">Intermarket spread</a></li> <li><a href="/wiki/Iron_butterfly_(options_strategy)" title="Iron butterfly (options strategy)">Iron butterfly</a></li> <li><a href="/wiki/Iron_condor" title="Iron condor">Iron condor</a></li> <li><a href="/wiki/Jelly_roll_(options)" title="Jelly roll (options)">Jelly roll</a></li> <li><a href="/wiki/Ladder_(option_combination)" title="Ladder (option combination)">Ladder</a></li> <li><a href="/wiki/Naked_option" title="Naked option">Naked option</a></li> <li><a href="/wiki/Straddle" title="Straddle">Straddle</a></li> <li><a href="/wiki/Strangle_(options)" title="Strangle (options)">Strangle</a></li> <li><a href="/wiki/Protective_option" title="Protective option">Protective option</a></li> <li><a href="/wiki/Ratio_spread" title="Ratio spread">Ratio spread</a></li> <li><a href="/wiki/Risk_reversal" title="Risk reversal">Risk reversal</a></li> <li><a href="/wiki/Vertical_spread" title="Vertical spread">Vertical spread</a> (<a href="/wiki/Bear_spread" title="Bear spread">Bear</a>, <a href="/wiki/Bull_spread" title="Bull spread">Bull</a>)</li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Valuation_of_options" title="Valuation of options">Valuation</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Bachelier_model" title="Bachelier model">Bachelier</a></li> <li><a href="/wiki/Binomial_options_pricing_model" title="Binomial options pricing model">Binomial</a></li> <li><a href="/wiki/Black_model" title="Black model">Black</a></li> <li><a href="/wiki/Black%E2%80%93Scholes_model" title="Black–Scholes model">Black–Scholes</a> (<a href="/wiki/Black%E2%80%93Scholes_equation" title="Black–Scholes equation">equation</a>)</li> <li><a href="/wiki/Finite_difference_methods_for_option_pricing" title="Finite difference methods for option pricing">Finite difference</a></li> <li><a href="/wiki/Foreign_exchange_option#Valuation:_the_Garman–Kohlhagen_model" title="Foreign exchange option">Garman–Kohlhagen</a></li> <li><a href="/wiki/Heston_model" title="Heston model">Heston</a></li> <li><a href="/wiki/Lattice_model_(finance)" title="Lattice model (finance)">Lattices</a></li> <li><a href="/wiki/Margrabe%27s_formula" title="Margrabe's formula">Margrabe</a></li> <li><a href="/wiki/Put%E2%80%93call_parity" title="Put–call parity">Put–call parity</a></li> <li><a href="/wiki/Monte_Carlo_methods_for_option_pricing" title="Monte Carlo methods for option pricing">MC Simulation</a></li> <li><a href="/wiki/Real_options_valuation" title="Real options valuation">Real options</a></li> <li><a href="/wiki/Trinomial_tree" title="Trinomial tree">Trinomial</a></li> <li><a href="/wiki/Vanna%E2%80%93Volga_pricing" title="Vanna–Volga pricing">Vanna–Volga</a></li></ul> </div></td></tr></tbody></table><div></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Swap_(finance)" title="Swap (finance)">Swaps</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Amortising_swap" title="Amortising swap">Amortising</a></li> <li><a href="/wiki/Asset_swap" title="Asset swap">Asset</a></li> <li><a href="/wiki/Basis_swap" title="Basis swap">Basis</a></li> <li><a href="/wiki/Commodity_swap" title="Commodity swap">Commodity</a></li> <li><a href="/wiki/Conditional_variance_swap" title="Conditional variance swap">Conditional variance</a></li> <li><a href="/wiki/Constant_maturity_swap" title="Constant maturity swap">Constant maturity</a></li> <li><a href="/wiki/Correlation_swap" title="Correlation swap">Correlation</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default</a></li> <li><a href="/wiki/Currency_swap" title="Currency swap">Currency</a></li> <li><a href="/wiki/Dividend_swap" title="Dividend swap">Dividend</a></li> <li><a href="/wiki/Equity_swap" title="Equity swap">Equity</a></li> <li><a href="/wiki/Foreign_exchange_swap" title="Foreign exchange swap">Forex</a></li> <li><a href="/wiki/Forward_rate_agreement" title="Forward rate agreement">Forward Rate Agreement</a></li> <li><a href="/wiki/Inflation_swap" title="Inflation swap">Inflation</a></li> <li><a href="/wiki/Interest_rate_swap" title="Interest rate swap">Interest rate</a></li> <li><a href="/wiki/Overnight_indexed_swap" title="Overnight indexed swap">Overnight indexed</a></li> <li><a href="/wiki/Total_return_swap" title="Total return swap">Total return</a></li> <li><a href="/wiki/Variance_swap" title="Variance swap">Variance</a></li> <li><a href="/wiki/Volatility_swap" title="Volatility swap">Volatility</a></li> <li><a href="/wiki/Year-on-year_inflation-indexed_swap" title="Year-on-year inflation-indexed swap">Year-on-year inflation-indexed</a></li> <li><a href="/wiki/Zero_coupon_swap" title="Zero coupon swap">Zero Coupon</a></li> <li><a href="/wiki/Zero-coupon_inflation_swap" title="Zero-coupon inflation swap">Zero-coupon inflation-indexed</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><div class="hlist"><ul><li><a href="/wiki/Forward_contract" title="Forward contract">Forwards</a></li><li><a href="/wiki/Futures_contract" title="Futures contract">Futures</a></li></ul></div></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Contango" title="Contango">Contango</a></li> <li><a href="/w/index.php?title=Commodities_future&action=edit&redlink=1" class="new" title="Commodities future (page does not exist)">Commodities future</a></li> <li><a href="/wiki/Currency_future" title="Currency future">Currency future</a></li> <li><a href="/wiki/Dividend_future" title="Dividend future">Dividend future</a></li> <li><a href="/wiki/Forward_market" title="Forward market">Forward market</a></li> <li><a href="/wiki/Forward_price" title="Forward price">Forward price</a></li> <li><a href="/wiki/Forward_contract#Spot–forward_parity" title="Forward contract">Forwards pricing</a></li> <li><a href="/wiki/Forward_rate" title="Forward rate">Forward rate</a></li> <li><a href="/wiki/Futures_contract#Pricing" title="Futures contract">Futures pricing</a></li> <li><a href="/wiki/Interest_rate_future" title="Interest rate future">Interest rate future</a></li> <li><a href="/wiki/Margin_(finance)" title="Margin (finance)">Margin</a></li> <li><a href="/wiki/Normal_backwardation" title="Normal backwardation">Normal backwardation</a></li> <li><a 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Inc.","logo":{"@type":"ImageObject","url":"https:\/\/www.wikimedia.org\/static\/images\/wmf-hor-googpub.png"}},"datePublished":"2002-01-16T18:44:26Z","dateModified":"2025-03-03T03:08:05Z","headline":"financial instrument whose value is based on one or more underlying assets"}</script> </body> </html>