Description
The Very Basics. Good for a 5 minute presentation
Presented By Fenil Shah 18th June, 2011
Content:
y Introduction y Factors Driving The Growth Of Derivatives y Types of Derivatives y Participants y Underlying Asset Class
y Economic functions y Benefits y Criticism y Derivatives in India
Introduction
y Derivatives are synthetic instruments y They derive value from an underlying asset class y Asset classes range from financial instruments to
commodities.
y Common underlying theme of derivatives is that
they are leveraged products.
Factors Driving The Growth Of Derivatives
y Increased volatility. y Increased integration with the international
markets.
y Development of more sophisticated risk management
tools.
Types of Derivatives
y Futures/Forwards. y Options y Swaps y Baskets y Swaptions
Derivative Positions and Participants
y Naked open position taking a directional call on the
markets y Hedge against underlying asset class y Arbitrage position within an asset class y Speculators y Hedgers y Arbitrageurs
Underlying Asset Class
y Asset classes: financial which includes currencies and
commodities
y Financial asset classes: Interest rates, equities and
currencies
y Commodities range from agricultural commodities to
minerals and metals
Economic Functions
y Leverage y Speculate & make a profit y Hedge or mitigate risk in the underlying y Obtain exposure to the underlying
Benefits
y Derivatives facilitate the buying and selling of risk. y Helps increasing Buying in the underlying. y Create Liquidity in the Market.
Criticism
y Possible large losses. y Counter-party risk. y Leverage of an economy's debt.
Derivatives in India
y The structured derivative market in India is
relatively new (about 10 years old)
y However derivatives have caught the fancy of the
market and exchange traded equity and commodity derivatives are vibrant.
Equity Derivatives in India
y Nifty index futures are the highest traded contracts y Single stock futures are actively traded for arbitrage y Nifty index options are also traded actively y Single stock options do not trade actively
Factors to Study in Nifty Futures
y Open interest y Traded volumes as % to total derivative volumes y Basis spread y Movement of spread y Roll overs y Calendar Spreads
Factors to Study in Nifty Options
y Changes in price y Open interest y Implied Volatility y Put call parity
Factors to Study in Single Stock Futures
y Open interest y Basis Spread y Cost of carry y Volumes y Top traded single stock futures
doc_414839725.ppt
The Very Basics. Good for a 5 minute presentation
Presented By Fenil Shah 18th June, 2011
Content:
y Introduction y Factors Driving The Growth Of Derivatives y Types of Derivatives y Participants y Underlying Asset Class
y Economic functions y Benefits y Criticism y Derivatives in India
Introduction
y Derivatives are synthetic instruments y They derive value from an underlying asset class y Asset classes range from financial instruments to
commodities.
y Common underlying theme of derivatives is that
they are leveraged products.
Factors Driving The Growth Of Derivatives
y Increased volatility. y Increased integration with the international
markets.
y Development of more sophisticated risk management
tools.
Types of Derivatives
y Futures/Forwards. y Options y Swaps y Baskets y Swaptions
Derivative Positions and Participants
y Naked open position taking a directional call on the
markets y Hedge against underlying asset class y Arbitrage position within an asset class y Speculators y Hedgers y Arbitrageurs
Underlying Asset Class
y Asset classes: financial which includes currencies and
commodities
y Financial asset classes: Interest rates, equities and
currencies
y Commodities range from agricultural commodities to
minerals and metals
Economic Functions
y Leverage y Speculate & make a profit y Hedge or mitigate risk in the underlying y Obtain exposure to the underlying
Benefits
y Derivatives facilitate the buying and selling of risk. y Helps increasing Buying in the underlying. y Create Liquidity in the Market.
Criticism
y Possible large losses. y Counter-party risk. y Leverage of an economy's debt.
Derivatives in India
y The structured derivative market in India is
relatively new (about 10 years old)
y However derivatives have caught the fancy of the
market and exchange traded equity and commodity derivatives are vibrant.
Equity Derivatives in India
y Nifty index futures are the highest traded contracts y Single stock futures are actively traded for arbitrage y Nifty index options are also traded actively y Single stock options do not trade actively
Factors to Study in Nifty Futures
y Open interest y Traded volumes as % to total derivative volumes y Basis spread y Movement of spread y Roll overs y Calendar Spreads
Factors to Study in Nifty Options
y Changes in price y Open interest y Implied Volatility y Put call parity
Factors to Study in Single Stock Futures
y Open interest y Basis Spread y Cost of carry y Volumes y Top traded single stock futures
doc_414839725.ppt