Question 1:
(a) What are the distinct types of assets under which derivatives can be based upon?
(b) Give at least 5 risks that justify the existence of derivatives? Endorse your answer using appropriate examples.
(c) Distinguish between futures and forwards.
Question 2:
(a) Mathematically derive the following positions:
i. Long position on a call option
ii. Short position on a put option
(b) Differentiate between implied volatility and historical volatility.
(c) Why options are considered as leveraged instruments? Explain fully with a proper example.