Unlocking vast risk potential through financial derivatives – A fair valuation on the comparative analysis of strategies & option pricing models in the Indian context

Derivatives have become increasingly important in finance. Futures and options are now traded actively on many exchanges through the world. Many different types of forward contracts, swaps, options, and other derivatives are regularly traded by financial institutions, fund managers, and corporate treasurers in over the counter (OTC). We have now reached the stage where anyone who works in finance need to understand how derivatives specially options works, how they are used, and how they are priced. I personally believe that this research work would only help you once you are aware derivates overview. There is huge potential gain as well as huge risk is involved while trading derivatives. Still many are not having adequate knowledge about option pricing and strategies. So in the first part, the authors would try to focus on basics of Option. Options are like insurance. Options buyers have limited risk (max. loss is premium amount to buy the option) but having probability of unlimited profit whereas options seller have limited profit (premium amount by selling option) but having probability of unlimited loss. The authors have also focussed on how to calculate premium amount for buying or selling particular. Various Caselets add justification to the hypothesis. Options using and comparing various option pricing methodologies. A brief analysis of the very basic methods of the option pricing i.e. Black & Scholes and Binomial Tree Method have also been empirically discussed