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Explain the fundamental linkages between spot and derivative markets.
The fundamental linkages between spot and derivative markets include the relationship between the current price of an asset in the spot market and the price of its derivative in the derivative market. Changes in the spot market can impact the prices of derivatives, and vice versa. Additionally, arbitrage opportunities and hedging strategies contribute to the fundamental linkages between the two markets.
What are the basic option strategies in derivative markets?
Basic option strategies in derivative markets include buying call options, buying put options, writing (selling) call options, and writing (selling) put options. These strategies are used by investors and traders to speculate on price movements, hedge against potential losses, or generate income through option premiums.
Discuss the structure of options market and the principles of option pricing.
The structure of the options market involves the trading of standardized contracts that give the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) within a specific time period. The principles of option pricing are based on factors such as the underlying asset's price, the strike price, time to expiration, volatility, and risk-free interest rate. Option pricing models, such as the binomial model and the Black-Scholes Merton model, are used to calculate the fair value of options.
Explain the uses of derivatives in the context of hedging and trading strategies.
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What are the types of commodity market derivatives, and how do commodity exchanges function in facilitating derivative trading?
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