Table Of ContentDerivatives and
Financial Innovations
This book touches all dimensions of futures and options trading starting from basic
concepts to sophisticated trading strategies in a simple and lucid manner. I am sure that
after going through this work, market participants would have a great understanding of
this complex subject.
DR M T RAJU
Director (In-Charge)
Indian Institute of Capital Markets, Mumbai
This is a comprehensive work on derivatives encompassing almost all segments of the
financial market—commodities, equities, currencies and interest rates. One can read
this book like a novel, which is interesting, informative, educative and fun because it
focuses on conceptual issues and thought provoking ideas on derivatives without involving
mathematical web.
DR CHIRAGRA CHAKRABARTY
Head—Research & Development & Training
Multi Commodity Exchange, Mumbai
Authors Manish Bansal and Navneet Bansal are actively associated with derivatives
revolution in the country. Both of them have contributed phenomenally in this area
through their continuous educational and training efforts along with their successful
stints with their respective organizations. This book is a great contribution from both of
them to the Indian Financial Market.
C VASUDEVAN
General Manager—Knowledge Management
Head—BSE Training Institute, Mumbai
Derivatives and
Financial Innovations
M B
ANISH ANSAL
Vice President
Citigroup
Mumbai
N B
AVNEET ANSAL
Director
Equity Risk Management
UBS AG
Hong Kong
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To
Our Parents
Foreword
Financial markets in India have undergone significant changes
over the last several years. Both, the chemistry of change and its
pace, have become unprecedented and unpredictable. Innovation
in products, processes and procedures has become almost
ubiquitous. The entry of derivatives into different segments of
the Indian market—be they equity, commodity, currency or
interest rate—is one such example of change. These products
serve the vitally important economic functions of price discovery
and risk management.
India joined the league of exchange traded derivatives with
the introduction of equity derivatives Index Futures in June 2000.
Subsequently, expansion of the product portfolio to include Index
options, individual stock options and individual stock futures
gave the equity derivatives market its required impetus. Today,
the market clocks an average daily volume of $ 8–10 billion.
The introduction of commodity derivatives at the end of
2003 marked another beginning for the country. Today, we trade
futures on various commodities including energy, bullion, base
metals and agricultural commodities. This market has also shown
remarkable growth over time, with a daily average volume of
$ 2–3 billion. There is also a significant amount of derivatives
business on foreign exchange and interest rate products.
An exposure to derivatives has thus become an imperative
for a successful stint in the financial services world. This book is
a comprehensive work on the subject, presenting the complicated
viii Foreword
terminology of derivatives in a simplified manner. The issueshave
been worked out thoroughly and knowledgeably, especially inthe
Indian context, and I sincerely believe the book is a meaningful
contribution to the Indian financial market.
MANOJ VAISH
President & CEO—India
Dun & Bradstreet Information Services India Pvt. Ltd.
Preface
India today is undergoing the demolition of its rigid structures,
cumbersome rules and procedural aspects, and building a higher
degree of integration with the rest of the world. This integration,
unequivocally, brings in new opportunities by extending trade
beyond the geographical boundaries of the nation. At the same
time, it presents risks. This risk management demands new set
of products and competencies.
The economic rationale behind the introduction of deriva-
tives in any economy is risk management and efficient price
discovery. Fundamentally, derivatives are risk management
products. Worldwide, these markets are reflecting unprecedented
growth in volumes. In fact, in many countries, volumes in the
derivatives markets are many times the volumes in the underlying
cash markets.
The exploitation of these products’ value generating capa-
bilities by the market participants requires sound understanding
of product nuances and their strategic use. This work will hope-
fully help readers accomplish that.
This book is the product of our interaction with thousands
of market participants during our seminars and training
programmes. No words are sufficient to thank the many friends
and colleagues to whom we owe a great deal of the credit for
this work. We would like to extend our sincere thanks to Harsh
Nahata and Vikram Sampat, who helped us with a part of the
book. We would also like to acknowledge our sincere thanks for
x Preface
the patient and diligent work done by the editorial team that
spent nights editing the material.
In conclusion, we invite readers’ suggestions and feedback,
if any, as it would offer us an opportunity to enrich this work
further.
MANISH BANSAL
[email protected]
NAVNEET BANSAL
[email protected]
