Introduction to financial derivatives Edition: 1

Derivative instruments are the primary tools for portfolio management (i.e. financial risk management), enabling investors to alter the composition of their portfolios by adjusting the exposure to specific securities without actually trading those (underlying) securities. Investors can also manage their wealth by setting specific (hedging) or protecting minimum (insuring) portfolio values through the trading of derivatives based on indices (baskets of representative securities that correlate with individual portfolios).