Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 291 views

    Financial Engineering & Risk Management

    Uploaded by

    Robin Neema
    The document discusses risk and derivatives. It defines risk as the potential for loss based on the outcome of an uncertain event. It also defines derivatives as financial instruments whose value is derived from an underlying asset such as a stock or commodity. The document then provides a brief history of derivatives, noting they have existed since ancient times but modern contracts began as farmers sought to hedge crop prices. It outlines the key milestones in the development of derivatives markets in India, including the introduction of stock index futures, options, and other contracts around 2000.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Financial Engineering & Risk Management

    Uploaded by

    Robin Neema
    291 views10 pages
    The document discusses risk and derivatives. It defines risk as the potential for loss based on the outcome of an uncertain event. It also defines derivatives as financial instruments whose value is derived from an underlying asset such as a stock or commodity. The document then provides a brief history of derivatives, noting they have existed since ancient times but modern contracts began as farmers sought to hedge crop prices. It outlines the key milestones in the development of derivatives markets in India, including the introduction of stock index futures, options, and other contracts around 2000.

    Original Title

    Derivatives

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses risk and derivatives. It defines risk as the potential for loss based on the outcome of an uncertain event. It also defines derivatives as financial instruments whose value is derived from an underlying asset such as a stock or commodity. The document then provides a brief history of derivatives, noting they have existed since ancient times but modern contracts began as farmers sought to hedge crop prices. It outlines the key milestones in the development of derivatives markets in India, including the introduction of stock index futures, options, and other contracts around 2000.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    291 views10 pages

    Financial Engineering & Risk Management

    Uploaded by

    Robin Neema
    The document discusses risk and derivatives. It defines risk as the potential for loss based on the outcome of an uncertain event. It also defines derivatives as financial instruments whose value is derived from an underlying asset such as a stock or commodity. The document then provides a brief history of derivatives, noting they have existed since ancient times but modern contracts began as farmers sought to hedge crop prices. It outlines the key milestones in the development of derivatives markets in India, including the introduction of stock index futures, options, and other contracts around 2000.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 10

    Financial Engineering & Risk Management

    INTRODUCTION TO RISK

    Meaning of Risk
    Riskis the potential that a chosen action or activity will lead to a loss (an undesirableoutcome).Thenotionimpliesthatachoicehavinganinfluenceonthe outcomeexists.Potentiallossesthemselvesmayalsobecalled"risks In one definition, "risks" are simply future issues that can be avoided or mitigated,ratherthanpresentproblemsthatmustbeimmediatelyaddressed. Thesimplefactisthatriskisalwaysaprobabilityissue.Possibilityisabinary conditioneithersomethingispossible,oritsnot100%or0%. OHSAS(OccupationalHealth&SafetyAdvisoryServices)definesriskasthe product of the probability of a hazard resulting in an adverse event, times the severityoftheevent

    Types of Risk

    INTRODUCTION TO DERIVATIVES
    1) 2) 3) 4) 5) 6)

    MeaningofDerivatives DefinitionofDerivatives Origin/HistoryofDerivatives DerivativesinIndia MilestonesofDerivativesmarketinIndia TypesofMarket OverthecounterMarket ExchangeTradedMarket

    1.1 Meaning Of Derivatives:

    Thetermderivativesisusedtorefertofinancialinstrumentswhichderivetheir valuefromsomeunderlyingassets. Theunderlyingassetscouldbeequities(shares),debt(bonds,T-bills,andnotes), currencies,andevenindicesofthesevariousassets,suchastheNifty50Index. Derivativesderivetheirnamesfromtheirrespectiveunderlyingasset.Thusifa derivativesunderlyingassetisequity,itiscalledequityderivativeandsoon. Thebasicpurposeofderivativesistotransferthepricerisk(inherentinfluctuations oftheassetprices)fromonepartytoanother;theyfacilitatetheallocationofriskto thosewhoarewillingtotakeit.

    1.2 Definition Of Derivatives:According to L C Gupta committee:The term "derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the cash asset. A derivative contract or product, or simply "derivative", is to be sharply distinguished from the underlying cash asset, i.e. the asset bought/sold in the cash market on normal delivery terms. A general definition of "derivative" may be suggested here as follows: "Derivative" means forward, future or option contract of pre-determined fixed duration, linked for the purpose of contract fulfillment to the value of specified real or financial asset or to index of securities. A derivative is an instrument whose value depends on the values of other more basic underlying assets. A derivative is a financial instrument whose value depends on is derived from the value of some other financial instrument, called the underlying asset

    1.3 Origin Of Derivatives:


    Whiletradinginderivativesproductshasgrowntremendouslyinrecenttimes,theearliest evidenceofthesetypesofinstrumentscanbetracedbacktoancientGreece.Eventhough derivativeshavebeeninexistenceinsomeformortheothersinceancienttimes,theadventof moderndayderivativescontractsisattributedtofarmersneedtoprotectthemselvesagainsta declineincroppricesduetovariouseconomicandenvironmentalfactors.Thus,derivatives contractsinitiallydevelopedincommodities.Thefirstfuturescontractscanbetracedtothe YodoyaricemarketinOsaka,Japanaround1650.Thefarmerswereafraidofricepricesfalling inthefutureatthetimeofharvesting.Tolockinaprice(thatis,tosellthericeata predeterminedfixedpriceinthefuture),thefarmersenteredintocontractswiththebuyers. Thesewereevidentlystandardizedcontracts,muchliketodaysfuturescontracts. In1848,theChicagoBoardofTrade(CBOT)wasestablishedtofacilitatetradingofforward contractsonvariouscommodities.Fromthenon,futurescontractsoncommoditieshave remainedmoreorlessinthesameform,asweknowthemtoday. Whilethebasicsofderivativesarethesameforallassetssuchasequities,bonds,currencies, andcommodities,wewillfocusonderivativesintheequitymarketsandallexamplesthatwe discusswillusestocksandindex(basketofstocks).

    1.4 Derivatives In India:


    InIndia,derivativesmarketshavebeenfunctioningsincethenineteenthcentury,with organizedtradingincottonthroughtheestablishmentoftheCottonTradeAssociationin1875. Derivatives,asexchangetradedfinancialinstrumentswereintroducedinIndiainJune2000. TheNationalStockExchange(NSE)isthelargestexchangeinIndiainderivatives,tradingin variousderivativescontracts. ThefirstcontracttobelaunchedonNSEwastheNifty50indexfuturescontract. Inaspanofoneandahalfyearsaftertheintroductionofindexfutures,indexoptions,stock optionsandstockfutureswerealsointroducedinthederivativessegmentfortrading. NSEsequityderivativessegmentiscalledtheFutures&OptionsSegmentorF&OSegment. NSEalsotradesinCurrencyandInterestRateFuturescontractsunderaseparatesegment.

    1.5 Milestones In The Development Of Indian Derivative Market:

    November18,1996-L.C.GuptaCommitteesetuptodraftapolicyframeworkfor introducingderivatives. May11,1998-L.C.Guptacommitteesubmitsitsreportonthepolicyframework. May25,2000-SEBIallowsexchangestotradeinindexfutures June12,2000-TradingonNiftyfuturescommencesontheNSE June4,2001-TradingforNiftyoptionscommencesontheNSE July2,2001-TradingonStockoptionscommencesontheNSE November9,2001-TradingonStockfuturescommencesontheNSE August29,2008-CurrencyderivativestradingcommencesontheNSE August31,2009-InterestratederivativestradingcommencesontheNSE

    1.6 Types Of Market

    You might also like