A STUDY ON HEDGING OF EQUITY RISK WITH FUTURES CONTRACTS

A derivative is a financial instrument, whose value depends on other, more basic, underlying variables. Derivative is a product/contract which does not have any value on its own i.e. it derives its value from some underlying. The variables underlying could be prices of traded securities and stock, prices of gold or copper, prices of oranges to even the amount of snow that falls on a ski resort. Derivatives have become increasingly important in the field of finance. Options and futures are traded actively on many exchanges. Forward contracts, swaps, and different types of options are regularly traded outside exchanges by financial Institutions, banks and their corporate clients in what are termed as over-the-Counter markets-in other words; there is no single market place or an organized Exchange. The problem is either investing in futures is profitable or in options.