The Derivatives Contract

Abstract

This chapter introduces the derivatives contract, which is a legal agreement between its holders. The protean variety and inherent complexity of derivatives make the trading and managing of their contracts challenging. This chapter begins with an explanation of the general characteristics of a derivatives contract and an account of the successive phases of the contract lifecycle. The various functional units of an organization involved in contract management and the role of each unit are also discussed. Finally, this chapter touches on contract lifecycle variations across the major product types. The topics and terminology presented in this chapter serve as the foundation for more detailed discussion in corresponding chapters about specific product type (Part III). Chapter 10 will provide in-depth life cycle of contract.