by Girl Banker
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The very word "derivative" makes some people start running for the hills. It sounds scary, complicated, brain numbing. However, if you take the time to read a little about them, the majority of derivatives are easy to understand, particularly derivatives that are designed to hedge specific financial risks. Speculative derivatives can get a lot more complicated.
A derivative is a financial product whose value depends on the change in the value of some other underlying product.
Derivatives are primarily used for:
In the equity capital markets, the simplest derivative is an equity call option and in the debt capital markets the simplest derivative is an interest rate swap. So read:
What is LIBOR? (it's an important variable in derivatives pricing)
What is an interest rate swap (or IRS)?
What is a call option or an equity call option?
I created my investment banking blog in 2012 as soon as I resigned from i-banking & published my book, To Become An Investment Banker.
Heather Katsonga-Woodward: On Business, Life & Everything In-Between