17.2 Types of financial derivatives

Financial derivatives

Due to complexity in nature, it is very difficult to classify the financial derivatives. The most basic derivatives are Forwards, Futures and Options. These three derivatives are the three basic building blocks of all complex derivatives, such as swaps.

In this session we are going to discuss mostly about three basic derivative markets – i.e, forwards, futures and options. It is also apt to have a brief on some other instruments like, warrants, Leaps etc. and a short explanation is give at the end of this chapter.