Module 1 · Derivatives

Derivative Markets and Instruments

EN: Derivative definition, OTC vs exchange-traded, basic categories.
VN: Định nghĩa phái sinh, OTC vs sàn niêm yết, các loại.

1. Definition Concept

About: Derivative = instrument whose value derives from an underlying. Transfers risk without transferring the underlying. Crucial for hedging, risk transfer, and speculation.Tóm tắt: Phái sinh = công cụ có giá trị từ tài sản cơ sở. Chuyển rủi ro mà không cần chuyển tài sản.

A derivative's value is derived from an underlying asset, rate or index. The derivative itself transfers risk without transferring the underlying.

2. Two Major Classes Concept

About: Forward commitments (both parties obligated — forwards/futures/swaps) vs contingent claims (buyer has option, seller has obligation — options, credit derivatives).Tóm tắt: Forward commitment (cả hai phải làm) vs contingent claim (buyer có option, seller có nghĩa vụ).

Forward commitments Both parties obligated — forwards, futures, swaps.
Contingent claims Buyer has option, seller has obligation — options, credit derivatives.

3. OTC vs Exchange-Traded Concept

About: OTC: customized, counterparty risk, less transparent (forwards, swaps, OTC options). Exchange: standardized, daily MTM, central counterparty (futures, listed options).Tóm tắt: OTC (tùy biến, có counterparty risk) vs sàn (chuẩn, daily MTM, central counterparty).

Comparison

OTC Customized terms, counterparty risk, less transparent. Forwards, swaps, OTC options.
Exchange Standardized, daily mark-to-market, central counterparty (clearinghouse) eliminates counterparty risk. Futures, listed options.

Practice problem Practice

Practice problem

Two parties enter a customized 6-month gold sale agreement directly with each other, no clearinghouse. What type of contract is this?

Show solution

OTC = bilateral, customized, counterparty risk present.

Forward contract (commodity forward).

OTC commodity forward