What are the different methods of determining the valuation of derivatives?

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Derivatives are determined by formulas that require different inputs. Futures contractual prices are appreciated by adding a spot price plus shipping costs. The possibilities of the possibilities are valued by means of complex financial formulas. Internal and external values ​​are used to determine the fair market price. At the basic retail level, futures and the possibilities of the most commonly traded derivatives are. The basic assets for futures contracts are commodities. Commodities such as gold, oil and grain have a spot price - the price at which the asset can be purchased or sold for immediate delivery. The delivery contract on a certain future date is a futures contract.

In order to determine the fair market price of the Futures derivative evaluation, the spot price is discovered by the process of supply and demand. Delivery of the asset will not take place up to the SOME -BUY DATE, so you need to add "shipping costs". Shipping costs may include storage fees and insurance fees in the case of commodities subject to ZKze. Interest rates would be a factor in financial futures and dividends could play a role in price index futures.

The valuation of derivatives for futures contracts is generally higher than the values ​​of spot prices. This normal situation is called “Contango”. In some cases, usually with currency futures, the futures price may be lower than the spot price called backward. In both cases, the price of futures and the spot price will be equal to the expiry of the contract and delivery will occur. The valuation of derivatives is relatively appreciated by market participants.

In options, the valuation of derivatives are performed using options of options. The most widespread price models are the Black-Scholes and the Binomic Model. Both models are based on similar theoretical assumptions and foundations. Key elements used at options are spot price, strike price, volatility, interest rates and time until expired.

change one of thoseThis will lead to a change in the value of the possibility. The possibility purchased today will have less value tomorrow due to a time disintegration. On the contrary, today the possibility sold tomorrow will be from greater value due to the captured time value. Of course, these statements are true only if all other elements remain unchanged. The key to understanding the valuation of derivatives on the options market is what the Greeks are called.

The possibility of Greeks are values ​​representing key option prices. The Greeks define the range of value change to change one of these elements. The Delta is related to the change in the value of the underlying asset and Gamma is related to the delta change. Theta is a value related to the time remaining until the voice of Vega is the relationship between value and volatility. RHO is related to the interest rate.

The internal value is the cash value of the spot price in relation to the strike price. This may be a positive or negative value. When positive, it is referred to as "in money". When it is negative, it is referred to as "money". ExternalThe value is essentially the value of the Greeks.

All these factors are used at options. They are used models of prices are good, but as accurate science will not achieve. The valuation of derivatives is sometimes overpriced and sometimes underestimated. Traders can earn and do it quite often in these situations.