The following points highlight the four main products of currency derivatives. The products are: 1. Forward Contract 2. Futures Contract 3. Options Contract 4. Swaps. 1. Forward Contract: Forward contracts are used by companies and individuals to hedge currency risk. In December 2003, the RBI permitted resident individuals to enter into forward contracts to hedge their foreign exchange risk. Resident [...]
For listed options the Black-Scholes model can be directly applied for valuation and it is commonly used by practitioners for such a purpose. However, for options that are not explicitly stated but embedded as part of the condition of another instrument and thus implicit, a less direct method (incorporating the standard binomial model) is commonly used by practitioners. This mode [...]
The following points highlight the thirteen main aspects of options. The aspects are: 1. Calendar Spread 2. Calculation of Premium on Options 3. Intrinsic Value of an Option 4. In the Money, at the Money and Out of the Money Options 5. Time Value of Option 6. Types of Covered Call 7. Put-Call Ratio 8. Open Market 9. Liquidating Option [...]