Derivative (finance) - Wikipedia, the free encyclopedia


** Derivative (finance) **

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A *derivative* is a financial instrument which /derives/ its value from the
value of underlying entities such as an asset, index, or interest
rate—it has no intrinsic value in itself.^[1] Derivative transactions
include a variety of financial contracts, including structured debt
obligations and deposits, swaps, futures, options, caps, floors, collars,
forwards, and various combinations of these.^[2]

To give an idea of the size of the derivative market, /The Economist/
magazine has reported that as of June 2011, the over-the-counter (OTC)
derivatives market amounted to approximately $700 trillion, and the size of
the market traded on exchanges totaled an additional $83 trillion.^[3]
However, these are “notional” values, and some economists say
that this value greatly exaggerates the market value and the true credit
risk faced by the parties involved. For example, in 2010, while the
aggregate of OTC derivatives exceeded $600 trillion, the value of


what are derivatives

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