Abstract
Derivatives are valued based on an underlying financial instrument. Futures, forwards, and swaps are all derivatives characterized as having linear payoffs. The valuation of the derivative will move one for one with increases or decreases in the underlying asset. The outstanding notional amount of these instruments is huge, and their various structures reflect some of the most creative thinking in finance. Topics covered in this chapter include: Futures Mechanics, Single Stock Futures, Equity Swaps, Total Return Swaps, Inflation Swaps, Stock Index Futures, Interest Rate Swaps, Interest Rate Futures, and Credit Default Swaps. Fintech implementations in derivatives are present in front, middle, and back office applications but the focus is on capital markets, which are not as visible as consumer applications. OpenGamma is a startup which has developed analytics for transaction and margining costs. R3CEV has Blockchain projects underway.
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