Getting Started with Derivatives — Handwritten Notes
A Hand-Written Introduction to Compounding, Futures, and Options
This week’s notes introduce discrete and continuous compounding, futures and forwards, and the key difference between options and futures/forwards.
We’ll start by comparing how money grows under discrete versus continuous compounding, building a feel for the exponential effect of time and rate frequency. Then we’ll step into forward and futures contracts, exploring how these agreements let participants lock in prices and manage risk in uncertain markets. Finally, we’ll look at options, which share the same foundation but add one crucial twist — choice. Unlike a forward or future, which obligates both parties, an option gives the holder the right but not the obligation to act.
