Futures — definition?
Standardized contracts to buy/sell at a future date.
Derivatives — role?
Facilitate risk management and speculation.
Equities — ownership?
Shares representing company ownership.
ETFs — purpose?
Diversified funds traded on exchanges.
Risk management — strategy?
Using derivatives to offset adverse price movements.
Arbitrage — mechanism?
Exploiting price discrepancies for risk-free profit.
Futures pricing — components?
Spot price, cost of carry, convenience yield.
Options — types?
Calls (buy), Puts (sell).
Option payoff — graph?
Shows profit/loss at different underlying prices.
Black-Scholes — purpose?
Theoretical options valuation model.
Futures — settlement?
Mostly cash, physical delivery rare (~2%).
Equities — dividend effect?
Dividends decrease call, increase put value.
Risk management — derivatives?
Set maximum/minimum asset values.
Arbitrage — example?
Buy gold in NY, sell in London if prices differ.
Futures — maturity dates?
Vary by commodity, e.g., monthly for oil.
Options Greeks — significance?
Measure sensitivity to underlying factors.
Test your knowledge with 8 questions on Fundamentals of Futures, Options, and Arbitrage.
1. When was the concept of market arbitrage opportunities first formally recognized or established in market theory?
2. What is the primary function of risk management strategies involving derivatives?
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