Other Relevant Derivatives
A derivative takes its value from something else. The variety is enormous and the building blocks are few.
The four primitives
Forwards: obligation to transact later at an agreed price, bilateral and customisable.
Futures: the standardised, exchange-traded, daily-margined version.
Options: the right without the obligation.
Swaps: exchange of cash flow streams, most often fixed against floating.
Almost everything else is a combination or a variation. A swap is a strip of forwards. A cap is a strip of interest rate options. A convertible bond is a bond plus an equity call.
The distinction that matters
Group them by whether the payoff is straight or bent, because this determines how they are risk-managed.
Linear (forwards, futures, swaps): payoff moves one-for-one with the underlying. Delta is constant, hedging is static, and pricing follows from no-arbitrage replication with no volatility input at all.
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