A financial derivative is a contract whose value is derived from the value of an underlying asset, such as a stock, bond, commodity, or currency.

The main types of derivative instruments are options, futures, forwards, and swaps.

An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period.

The two main types of options are call options (the right to buy) and put options (the right to sell).

A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specific future date.

A swap is a derivative contract where two parties exchange cash flows based on the value of an underlying asset or reference rate.

A forward contract is an over-the-counter agreement between two parties, while a futures contract is a standardized exchange-traded contract.

Delta measures the sensitivity of an option's price to changes in the price of the underlying asset.

The Black-Scholes model is a widely used pricing model for options that takes into account factors such as the underlying asset price, strike price, time to expiration, volatility, and interest rates.

Implied volatility is the market's estimation of the future volatility of an underlying asset, which is used in option pricing models like Black-Scholes.

Time value is the portion of an option's premium that reflects the possibility of the option becoming more profitable as time passes.

A call option's intrinsic value is the amount by which the underlying asset's price exceeds the strike price, if positive.

A put option's intrinsic value is the amount by which the strike price exceeds the underlying asset's price, if positive.

An option is 'in the money' if exercising it would result in a positive cash flow for the holder.

Delta hedging is a risk management strategy that involves dynamically adjusting the hedge ratio of an options position to maintain a desired level of market exposure.

A covered call strategy involves holding the underlying asset and selling call options on that asset to generate income from the option premium.

A protective put strategy involves holding the underlying asset and buying put options on that asset to limit downside risk.

The implied repo rate is the interest rate used to price a futures contract based on the difference between the futures price and the spot price of the underlying asset.

The cost of carry refers to the costs associated with holding the underlying asset until the futures contract's expiration, such as storage costs and financing costs.

A swap curve is a graphical representation of the term structure of interest rates for interest rate swaps, which is used for pricing and valuation purposes.

The cheapest-to-deliver concept refers to the bond in the deliverable basket with the lowest implied repo rate, which determines the bond that will be delivered to settle the futures contract.

A forward rate agreement (FRA) is an over-the-counter interest rate derivative that allows two parties to lock in a future interest rate for a specified period.

Convexity is a measure of the curvature in the relationship between bond prices and interest rates, which is important for accurately pricing bonds with embedded options.

A swaption is an option that gives the holder the right, but not the obligation, to enter into an interest rate swap at a predetermined rate on a future date.

A credit default swap (CDS) is a derivative contract that provides insurance against the risk of default by a particular company or sovereign entity.

Delta-gamma hedging is a risk management strategy that involves hedging both the delta and gamma exposures of an options portfolio to minimize the effects of changes in the underlying asset's price and volatility.

The Greeks refer to a set of risk measures that quantify the sensitivity of an option's price to various factors, such as delta (sensitivity to underlying price), gamma (sensitivity to delta), vega (sensitivity to volatility), theta (sensitivity to time decay), and rho (sensitivity to interest rates).

The volatility smile is a phenomenon where implied volatilities for options with different strike prices on the same underlying asset form a curved or 'smile-shaped' pattern, rather than being constant across all strike prices.

A straddle strategy involves simultaneously buying a call and a put option on the same underlying asset with the same strike price and expiration date, allowing the trader to profit from large movements in either direction.

A strangle strategy is similar to a straddle but involves buying an out-of-the-money call and an out-of-the-money put option on the same underlying asset with the same expiration date, providing a higher probability of profit but at a lower cost.

A butterfly spread is an options strategy that combines a bull spread and a bear spread, involving the purchase and sale of options at different strike prices to profit from a specific range of prices for the underlying asset.

A calendar spread is an options strategy that involves taking a position in options with different expiration dates but the same strike price, allowing the trader to potentially profit from changes in implied volatility over time.

A synthetic position is a combination of derivative instruments that replicates the payoff profile of another financial instrument or asset.

Leverage refers to the ability of derivatives to provide exposure to the underlying asset with a smaller initial investment, amplifying both potential gains and losses.

Margin is a deposit required by a futures exchange or broker to cover potential losses on a futures position, serving as a form of collateral and risk management.

The initial margin is the minimum amount of cash or collateral that must be deposited with a broker when opening a futures position.

The maintenance margin is the minimum amount of equity that must be maintained in a futures account at all times to avoid a margin call.

Marking-to-market is the daily process of adjusting futures account balances to reflect changes in the market value of open positions, ensuring that margin requirements are met.

Contango refers to a situation where futures prices are higher than the spot price of the underlying asset, reflecting the cost of carrying the asset until the futures contract's expiration.

Backwardation is a situation where futures prices are lower than the spot price of the underlying asset, indicating a potential shortage or strong demand for immediate delivery.

A bull call spread is an options strategy that involves buying a call option and selling a higher strike call option on the same underlying asset and expiration date, providing limited risk and profit potential.

A bear put spread is an options strategy that involves buying a put option and selling a lower strike put option on the same underlying asset and expiration date, providing limited risk and profit potential.

The Greeks approach to risk management involves monitoring and managing the various risk measures (delta, gamma, vega, theta, rho) of a derivatives portfolio to control exposure to changes in underlying factors such as price, volatility, time decay, and interest rates.

Value at Risk (VaR) is a risk management technique that estimates the potential loss that a derivatives portfolio could experience over a given time period and confidence level, providing a quantitative measure of market risk.

Netting is the process of offsetting and consolidating multiple derivative positions with the same counterparty, reducing credit exposure and capital requirements.

A credit valuation adjustment (CVA) is an adjustment made to the valuation of a derivatives portfolio to account for the potential risk of counterparty default.

A bullet swap is a type of interest rate swap where a single payment is made at the end of the swap's term, rather than periodic payments throughout the life of the swap.

A quanto swap is a type of cross-currency swap where one leg of the swap is converted into another currency using a fixed exchange rate, effectively eliminating exchange rate risk.

A variance swap is a derivative contract where the payoff is based on the difference between the realized variance of an underlying asset and a pre-determined strike variance level, providing exposure to changes in volatility.

The Girsanov theorem is a fundamental result in stochastic calculus that allows for the change of measure in pricing derivative securities, enabling the use of risk-neutral pricing techniques.