What are financial derivatives and how big is the market?
First, for what they are?, here is a good link: http://en.wikipedia.org/wiki/Derivative_(finance) “Derivatives are financial instruments whose values change in response to the changes in underlying variables. The main types of derivatives are futures, forwards, options, and swaps. The main use of derivatives is to reduce risk for one party. The diverse range of potential underlying assets and pay-off alternatives leads to a wide range of derivatives contracts available to be traded in the market. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indexes (such as a stock market index, consumer price index (CPI) — see inflation derivatives — or even an index of weather conditions, or other derivatives).” As for how big the market was in 2005-2007, the same above link reports: “Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way they are traded in ma
