Contingent Claim Valuation in a Complete Market
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A derivative security (also called contingent claim; cf. Definition 2.1 and discussion following it) is a financial contract whose value is derived from the value of another underlying, more basic, security, such as a stock or a bond. Common derivative securities are put options, call options, forward contracts, futures contracts, and swaps. These securities can be used for both speculation and hedging, but their creation and marketing are based much more on the latter use than the former. Some derivative securities are traded on exchanges, while others are arranged as private contracts between financial institutions and their clients. The world-wide market in derivative securities is in the trillions of dollars.
KeywordsCall Option Contingent Claim Future Contract Forward Contract European Call Option
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