Fundamentals of the Derivative Markets (2012)

The derivative markets are the financial markets for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange traded derivatives and that for over-the-counter derivatives. The legal nature of these products is very different as well as the way they are traded, though many market participants are active in both. Forwards, futures, swaps, options, hybrids (such as swaptions and options on futures) and a category called "other" (including credit derivatives and weather derivatives) make up the derivative markets (also called forward markets). The word is drawn from "derive" and means that the derivative instrument cannot exist on its own; it is closely related to "something" and this something is usually a cash (spot) market instrument and it is called the underlying instrument. This foundation course will expose participants to the context of the derivative markets, discuss key theoretical concepts of the derivative markets, and provide tools to analyze the essential characteristics of each derivative market.