ABSTRACT
The aim of this chapter is to explain typical derivative securities actually traded in the market. A derivative security (or simply a derivative) is a security whose value depends on the values of other more basic underlying variables. In recent years, derivative securities have become more important than ever in financial markets. Futures and options are actively traded in exchange markets and swaps and many exotic options are traded outside of exchanges, called the over-the-counter (OTC) markets, by financial institutions and their corporate clients. See, e.g., Cox and Rubinstein (1985) and Hull (2000) for more detailed discussions of financial products.
