Chapter 10
Derivatives
Derivatives such as futures, forwards, swaps, and options are important since they redistribute risks generated in the real economy, and are accordingly important tools for economic agents to transfer risk. They can be used for insuring against risk (hedging). However, investors have increasingly used derivatives to gain a purely economic exposure to the underlying asset or market variable with the aim of making a profit (speculation). An important feature of derivatives is that they allow those who use them to obtain leverage: With a relatively small outlay, the investor is able to take a large position in the market.
