How do I determine the real value of derivatives?

The derivative is a financial tool that derives its value from another asset. The real value is an attempt to insert an objective price on a financial instrument, either instead of or in the absence of its current market price. The calculation of the real value of derivatives involves taking into account the factors that affect how likely the derivative is to benefit from the holders. The company indicating the real value of the derivatives in its balance sheet must follow certain principles, such as monitoring the value of the underlying asset.

There is a wide range of derivatives. In general, they include an agreement on the exchange of exchange in the future, although one party may be able to decide whether the agreement continues. In any case, the stock exchange conditions are based on the price or exchange rate of a separate asset, which may and usually change between the concluded derivative agreement and the date of the agreed stock exchange. One or both parties in the derivative agreement can, on the rights to complete the agreement known as the sale of the position. In other words, a derivative is in itselfAsset, complete with market price.

The real value of derivatives is not necessarily the same as its current market price. Instead, it is an attempt to provide an objective degree of what is holding a position in a derivative in fact a "value" that may differ from the price to which it is sold. Most of the real value measurement methods use an objective formula, although decision -making on what factors must include in the formula is subjective.

One of the most common examples of the formula for measuring the real value of derivatives is the formula of black schools. This formula takes into account the current price of the underlying asset, the peace to which this price fluctuated in the past, the conditions of the derivative, the time that remained until the derivative exchange, and the current rate of return available from risk -free investments such as government bonds. Most attempts to assess the real derivative value use similar factors.

There are twoMain reasons for calculating the real value of derivatives. The first is to compare it to the current market price. If the current market price is lower, the investor concludes that this is a good value of investment, which is more likely than to be financially used. The second reason is to create a value for a derivative to be used as an asset in the balance sheet. There are complicated rules on how the company must do this calculation, depending on which accounting regulations to which the company gets and the exact type of derivative in question.