imported>Doug Williamson |
imported>Doug Williamson |
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| ''Risk management - hedging''. | | ''Payment services - PSD2''. |
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| A derivative instrument or contract is one whose value and other characteristics are derived from those of another asset or instrument (sometimes known as the Underlying Asset).
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| Derivative instruments are widely used by non-financial corporates for hedging purposes.
| | Under PSD2, third party providers of payment services include: |
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| | *Account Information Service Providers (AISPs) and |
| | *Payment Initiation Service Providers (PISPs). |
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| <span style="color:#4B0082">'''Example'''</span>
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| A share option is a type of derivative contract, allowing the holder to buy shares at a certain predetermined strike price.
| | Both AISPs and PISPs are regulated under PSD2. |
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| The value of the share option derives from the current price of the related underlying share, relative to the option strike price.
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| | | ==See also== |
| For instance, say we hold a call option to buy shares at a strike price of $50, and the option is very close to its expiry date.
| | *[[Free trade agreement]] |
| | | *[[Free trade area]] |
| If the shares are trading at $90, our option to buy at $50 is valuable.
| | *[[International trade]] |
| | | *[[North American Free Trade Agreement]] |
| The option holder could exercise their option, paying $50 per share, and then sell the shares for $90 each, making a profit of $40 per share.
| | *[[Payment Services Directive]] |
| | | *[[PSD2]] |
| So the option itself is valuable.
| | *[[Third party provider]] |
| | | *[[Trans-Pacific Partnership]] |
| We could sell the option for - roughly - $40 (per share).
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| On the other hand, if the share price were only $20, it wouldn't be rational to exercise an option to buy shares for $50.
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| It would be irrational to do that, because the shares are cheaper to buy in the market for $20 each.
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| Accordingly, the option isn't valuable at present.
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| The value of the option is being driven by - among other things - the share price.
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| == See also == | |
| * [[Call option]] | |
| * [[CCR]]
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| * [[Collateral]]
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| * [[Commodity risk]]
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| * [[CP]]
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| * [[Credit support annex]]
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| * [[Embedded derivative]]
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| * [[ETD]]
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| * [[Expiry date]]
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| * [[FC]]
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| * [[Fixing instrument]]
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| * [[Forward rate agreement]]
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| * [[Futures contract]] | |
| * [[FVTOCI]] | |
| * [[FVTPL]] | |
| * [[Hedge fund]]
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| * [[Hedging]]
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| * [[Interest rate derivative]]
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| * [[Interest rate swap]]
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| * [[IR]]
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| * [[ISDA Master Agreement]]
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| * [[Leverage]] | |
| * [[Margining]]
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| * [[Mark to market]]
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| * [[Maturity]]
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| * [[Notional principal]]
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| * [[Option]] | |
| * [[Outright]] | |
| * [[Potential Future Exposure]] | |
| * [[Replacement cost]]
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| * [[Risk management]]
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| * [[Rogue trader]]
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| * [[Strike price]]
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| * [[Tracker fund]]
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| * [[Transfer]]
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| * [[Underlying]]
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| * [[Underlying asset]]
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| * [[Underlying price]]
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| * [[X-Value Adjustment]] (XVA)
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| ===Other links===
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| *[http://www.treasurers.org/node/8599 Masterclass: Derivatives, ''Sarah Boyce,'' The Treasurer]
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| [[Category:Manage_risks]]
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