Commodity derivatives are financial instruments whose value is based on an underlying commodity. These derivatives can be used for hedging purposes or for speculation. The most common types of commodity derivatives are futures, options, and swaps. Due to their seasonal nature, valuing commodity derivatives requires pricing models that are different …

Derivative transactions may include collateral offered by the parties involved. These transactions require both parties to document the security provided by either one. Therefore, they may use a credit support annex (CSA). This document may give rise to a collateral choice option. Before discussing this option, it is crucial to …

A convertible bond is a bond that can be converted into a certain amount of the company’s stock at specified prices and dates. Convertible bonds are usually issued by young, growing companies that want to raise capital without giving up too much control of their company. For example, a company …

An option’s implied volatility is a measure of the option’s expected price fluctuation. It is a forward-looking, market-based estimate of volatility and is determined by the market price of the option. Implied volatility is a key ingredient in options pricing models such as the Black-Scholes model. It can be used …

Black-Scholes-Merton (BSM) is an option pricing model for valuing European options. It was developed in the 1970s by Fisher Black, Myron Scholes, and Robert Merton, of whom two were awarded the Nobel Prize in Economic Sciences in 1997 for their work. The BSM model has become one of the most …

The Black–Scholes-Merton (BSM) model is a renowned option pricing model used widely in financial markets. It was published by Fischer Black, Myron Scholes , and then Robert Merton in the early 1970s. Scholes and Merton later received the Nobel Memorial Prize in Economic Sciences for their work (Black died before …

Forward contracts are a crucial part of hedging and speculation for investors. These contracts allow two parties to buy or sell an asset at a specific price and future time. Usually, they also include the commodity, delivery date, and amount for the agreement. Forward contracts may come in many forms …

Financial transactions are the essence of a business. These transactions allow companies and other entities to acquire products or services. Once they do so, they can resell them to generate profits. While most transactions are straightforward, they may also require a legal form. For that purpose, sales and purchase agreements …

The term mergers and acquisitions (M&A) refers to the consolidation of companies through financial transactions. This process involves one company acquiring another company’s shares. Several terms and conditions may apply to these transactions. However, these terms may differ from one market to another. The valuation adjustment mechanism is unique to …

In the financial world, many different terms may be unfamiliar to you. One of these could be an “Interest Rate Cap,” which can help you protect your investments or savings from any drastic changes in interest rates. Interest rate caps have been around for over 50 years and have proven …