Linear – derivatives where the payoff is linearly related to the price of the underlying asset.
When the spot price increase, the price of the derivative also rises, and when the price falls, the derivatives price falls.
Forwards – Contracts that give the right to buy/sell an asset at a future date (maturity or exercise date), but at a price that is fixed today (futures price).
Futures – Forwards contracts with contract features that are standardised and is traded only at an exchange.
Non–linear – derivatives where the payoff is non–linearly related to the price of the underlying.
Options – Contracts which gives the buyer right to purchase/sell an asset at a pre–determined price (strike price) at or before a pre–determined time (maturity or
exercise date).
When the spot price increase, the price of the derivative also rises, and when the price falls, the derivatives price falls.
Forwards – Contracts that give the right to buy/sell an asset at a future date (maturity or exercise date), but at a price that is fixed today (futures price).
Futures – Forwards contracts with contract features that are standardised and is traded only at an exchange.
Non–linear – derivatives where the payoff is non–linearly related to the price of the underlying.
Options – Contracts which gives the buyer right to purchase/sell an asset at a pre–determined price (strike price) at or before a pre–determined time (maturity or
exercise date).
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