Risk in Investing in Derivatives
FINANCIAL DERIVATIVES
“Risk in Investing in Derivatives”
Submitted By:
Zeeshan Saeed (9961)
Hashim Mamsa (10138)
Fawaz Shaikh (11276)
Ali Kazi (10537)
Submitted To:
Mrs. Shazia Farooq
TABLE OF CONTENTS INTRODUCTION_______________________________________________________________________ 3 Types of Risk:_________________________________________________________________________ 4 I. Market Risk:…………………………………………………………………………………………………………………………………………. 4 II. Default risk…………………………………………………………………………………………………………………………………………. 5 III. Liquidity Risk:……………………………………………………………………………………………………………………………………… 5 IV. Operational Risk…………………………………………………………………………………………………………………………………. 5 V. Legal Risk:……………………………………………………………………………………………………………………………………………. 5
VI. Agency Risk:……………………………………………………………………………………………………………………………………….…6
VII. Systemic Risk:……………………………………………………………………………………………………………………………………….6 ADVANTAGES OF RISK_________________________________________________________________ 7 1. Facilitates Transfer of Risk:………………………………………………………………………………………………………….. 7 2. Enable Price Discovery:’……………………………………………………………………………………………………………….. 7 3. Provide Leveraging:……………………………………………………………………………………………………………………. 7 4. They Improve Market Efficiency for the Underlying Asset……………………………………………………………. 7 5. Derivatives Also Help Reduce Market Transaction Costs…………………………………………………………….. 7 DISADVANTAGES OF RISK______________________________________________________________ 8 1. Time decay……………………………………………………………………………………………………………………………………… 8 2. Raises Volatility:…………………………………………………………………………………………………………………………… 8 3. Higher no. of Bankruptcies:…………………………………………………………………………………………………………… 8 4. Company Reputation:…………………………………………………………………………………………………………………….. 9 5. Restrict the innovation:………………………………………………………………………………………………………………… 9 BACKGROUND OF THE RESEARCH AND SIMILAR CASES______________________________________ 9 CASE
“Risk in Investing in Derivatives”
Submitted By:
Zeeshan Saeed (9961)
Hashim Mamsa (10138)
Fawaz Shaikh (11276)
Ali Kazi (10537)
Submitted To:
Mrs. Shazia Farooq
TABLE OF CONTENTS INTRODUCTION_______________________________________________________________________ 3 Types of Risk:_________________________________________________________________________ 4 I. Market Risk:…………………………………………………………………………………………………………………………………………. 4 II. Default risk…………………………………………………………………………………………………………………………………………. 5 III. Liquidity Risk:……………………………………………………………………………………………………………………………………… 5 IV. Operational Risk…………………………………………………………………………………………………………………………………. 5 V. Legal Risk:……………………………………………………………………………………………………………………………………………. 5
VI. Agency Risk:……………………………………………………………………………………………………………………………………….…6
VII. Systemic Risk:……………………………………………………………………………………………………………………………………….6 ADVANTAGES OF RISK_________________________________________________________________ 7 1. Facilitates Transfer of Risk:………………………………………………………………………………………………………….. 7 2. Enable Price Discovery:’……………………………………………………………………………………………………………….. 7 3. Provide Leveraging:……………………………………………………………………………………………………………………. 7 4. They Improve Market Efficiency for the Underlying Asset……………………………………………………………. 7 5. Derivatives Also Help Reduce Market Transaction Costs…………………………………………………………….. 7 DISADVANTAGES OF RISK______________________________________________________________ 8 1. Time decay……………………………………………………………………………………………………………………………………… 8 2. Raises Volatility:…………………………………………………………………………………………………………………………… 8 3. Higher no. of Bankruptcies:…………………………………………………………………………………………………………… 8 4. Company Reputation:…………………………………………………………………………………………………………………….. 9 5. Restrict the innovation:………………………………………………………………………………………………………………… 9 BACKGROUND OF THE RESEARCH AND SIMILAR CASES______________________________________ 9 CASE