“The past is certain, the future obscure”

 Thales of Milletus 

First of all, we must define what a derivative is. It is simply a security whose price relies upon another asset – called an underlying asset. An S&P future and an American call option are derivatives.

A security is a non-negotiable financial instrument with monetary value – you may sell it for cash. It could be the minimum part of a company (a stock) or one bushel (60 pounds) of soybeans.

Continue reading “What is a synthetic derivative?” →