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Derivative (finance)

In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, is simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements, increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets; some of the more common derivatives include forwards, options and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter or on an exchange such as the New York Stock Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the three main categories of financial instruments, the other two being stocks and debt.

The oldest example of a derivative in history, attested to by Aristotle, is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, who made a profit in the exchange. Bucket shops, outlawed in 1936, are a more recent historical example. Derivatives are contracts between two parties that specify conditions under which payments are to be made between the parties; the assets include commodities, bonds, interest rates and currencies, but they can be other derivatives, which adds another layer of complexity to proper valuation. The components of a firm's capital structure, e.g. bonds and stock, can be considered derivatives, more options, with the underlying being the firm's assets, but this is unusual outside of technical contexts. From the economic point of view, financial derivatives are cash flows that are conditioned stochastically and discounted to present value; the market risk inherent in the underlying asset is attached to the financial derivative through contractual agreements and hence can be traded separately.

The underlying asset does not have to be acquired. Derivatives therefore allow the breakup of ownership and participation in the market value of an asset; this provides a considerable amount of freedom regarding the contract design. That contractual freedom allows derivative designers to modify the participation in the performance of the underlying asset arbitrarily. Thus, the participation in the market value of the underlying can be weaker, stronger, or implemented as inverse. Hence the market price risk of the underlying asset can be controlled in every situation. There are two groups of derivative contracts: the traded over-the-counter derivatives such as swaps that do not go through an exchange or other intermediary, exchange-traded derivatives that are traded through specialized derivatives exchanges or other exchanges. Derivatives are more common in the modern era. One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the eighteenth century.

Derivatives are broadly categorized by the relationship between the underlying asset and the derivative. Derivatives may broadly be categorized as "lock" or "option" products. Lock products obligate the contractual parties to the terms over the life of the contract. Option products provide the buyer the right, but not the obligation to enter the contract under the terms specified. Derivatives can be used either for speculation; this distinction is important because the former is a prudent aspect of operations and financial management for many firms across many industries. Along with many other financial products and services, derivatives reform is an element of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010; the Act delegated many rule-making details of regulatory oversight to the Commodity Futures Trading Commission and those details are not finalized nor implemented as of late 2012. To give an idea of the size of the derivative market, The Economist has reported that as of June 2011, the over-the-counter derivatives market amounted to $700 trillion, the size of the market traded on exchanges totaled an additional $83 trillion.

For the fourth quarter 2017 the European Securities Market Authority estimated the size of European derivatives market at a size of €660 trillion with 74 million outstanding contracts. However, these are "notional" values, some economists say that these aggregated values exaggerate the market value and the true credit risk faced by the parties involved. For example, in 2010, while the aggregate of OTC derivatives exceeded $600 trillion, the value of the market was estimated to be much lower, at $21 trillion; the credit-risk equivalent of the derivative contracts was estimated at $3.3 trillio

2006 Danvers Chemical fire

The 2006 Danvers Chemical fire took place at 2:46 AM EST on Wednesday, November 22, 2006. An explosion occurred at the plant of solvent and ink manufacturer CAI Inc. located in the Danversport area of Danvers, which it shared with paint manufacturer Arnel. The explosion was caught on security camera and was heard up to 50 miles away in southern Maine and New Hampshire. Arnel ceased operations after the blast. A May 13, 2008 report from the U. S. Chemical Safety and Hazard Investigation Board attributed the explosion to unintentional overnight heating of an ink-mixing tank containing flammable solvents; the explosion damaged over 90 homes, blowing out windows and knocking some houses off their foundations. Officials believed that some of the more extensively damaged houses would have to be leveled and rebuilt; some of the buildings damaged included a bakery, boats at a nearby marina, the New England Home for the Deaf, an assisted-living facility for people who are deaf or deafblind and elderly residents requiring constant care.

"These people are fragile," said state Rep. Ted Speliotis, D-Danvers, whose district includes the affected area. "Many of them have other illnesses. It's clear they can't stay here long, but it's clear they won't be able to return for quite a while." Danvers Fire Chief James P. Tutko toured the area by helicopter and said many residents would be kept from their homes for the foreseeable future. "It looks like a war zone, that's the only thing I can say" Tutko said. No one was killed. "Somebody out there likes us", Tutko commented. He said that determining the cause of the explosion would take days. Outgoing governor Mitt Romney toured the area and said the explosion was a "Thanksgiving miracle", as the explosion was "equivalent to a 2,000 lb bomb going off in a residential neighborhood," and that no one was killed. In an area that included over 300 residents, just 10 people reported minor injuries. Residents of the area were evacuated to the Danvers High School, where temporary shelter was set up by the American Red Cross of Massachusetts Bay.

Donations were taken for residents affected by the explosion. Residents were advised to start filing insurance claims right away and to keep track of their expenses. There were minor environmental concerns due to water runoff of chemicals. According to the Environmental Protection Agency's on-scene coordinator Mike Nalipinski, preliminary tests showed low levels of toluene, a solvent, but said it was insignificant. Water runoff from the water used by firefighters left a purple sheen on the river and tests were conducted. However, the water is not a local drinking water supply, the chemical evaporates quickly. Chief Tutko said. An Eastern Propane facility is located near the area, however, it was not the source of the explosion. A spokesman for the company said that although the property suffered some minor damage, their tanks are secure. According to WHDH television, a person who answered the telephone at CAI's Georgetown, Massachusetts headquarters refused comment, a telephone message left at the company president's home was not returned.

"'Like 2,000 Pound Bomb' Dropped In Danvers". WBZ-TV. 2006-11-22. Archived from the original on 2006-11-23. Retrieved 2006-11-24. "Explosion heard over 20 miles away destroys homes in Danvers". Associated Press. 2006-11-22. Kathy McCabe. "Explosion rocks Danvers, several hurt, none seriously". The Boston Globe

Mike Bradwell

Mike Bradwell is a former Canadian football wide receiver who played for the Toronto Argonauts of the Canadian Football League. He was drafted in the second round of the 2008 CFL Draft by the Toronto Argonauts, he began playing football in his final year at Leaside High School and played CIS football with McMaster University. Bradwell enjoys watching movies and golfing in his free time and is a strong supporter of the Sian Bradwell Fund For Children With Cancer, he has two older siblings, Dave, a PhD graduate from M. I. T. and Suzanne, an emergency department doctor in St. Catharines. Bradwell majored in civil engineering at McMaster University and works as a field co-op student with PCL Constructors during the off-season. Toronto Argonauts bio Mike Bradwell on Twitter