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Questions tagged [derivatives]

This tag is to be used for any question on deravites. It should typically be used in conjuction with the actual instrument being used like Options, Swaps, Futures

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Forward contract hedge and market-maker

Referring to Mcdonald's "Derivatives markets" book, a market-maker or arbitrageur must be able to offset the risk of a forward contract. It is possible to do this by creating a synthetic forward ...
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UK taxation for options and futures trading

I live in UK and I see that there are 2 taxes when trading: CGT to be paid on capital gain and is 18% or 28% depending if you are basic tax payer or not income tax on any interest or dividend ...
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Financial product with high variance, instead of lottery

When I was a kid, our family would once a year play the lottery. We kids talked with our parents about what we would do if we won the jackpot, and whenever we won something small like $100, we would ...
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What does it mean to find the Present Value of a FRA?

What does it mean when the present value of a forward rate agreement is calculated? Is this a price that the owner of the FRA can sell it for? Thanks for the help.
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Do the rewards of custom contract size in OTC derivatives justify the counterparty risk?

If I decide to trade OTC derivatives, I take on counterparty risk. Since the transaction is not overseen by a clearing house/firm, I accept the risk that the counterparty may not honour the obligation....
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Futures and premium

A stock will either go up to uS or down to dS next period. The risk-free rate is r. I'm using replicating portfolios to derive the premium on a futures contract with futures price F. What would the ...
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Effects of Backwardation and Contango on Supply

As an example, if on June 1st, we observe that the term structure of oil prices is in backwardation up to the end of that year. After the New Year, the term structure of oil prices is in contango. ...
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Total return swaps for stock index

Apparently, inverse stock market ETFs (so-called bear ETFs) are constructed by taking positions in total return stock market index swaps, that is, the ETF forms a contract with an investment bank, who ...