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Daily Archives: March 19, 2010

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Master Class: Derivative Products: Vanilla products

There are three major categories of derivative instruments- options, forwards and futures, and swaps. A quick comparison of their characteristics is given in the table below: Option Forward Future Swap Downside Protection ü ü ü ü Upside Potential ü Initial Cost ü Credit Risk ü

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Master Class: Derivative Products: Review

A second look at derivative contracts A typical derivative deal comes with a long list of qualifications that are presented and shared with customers in the form of a term sheet. A term sheet is generally executed as a legally binding document with a number


Option Payoff profiles – Calls and Puts

Option Payoff profiles for Calls and Puts Compare this to the pay off profile for an option contract.  Unlike a forward, there is only a limited downside with option contracts. An option gives its owner the right to exercise but not the obligation to perform