Financial derivatives: applications and policy issues

FINANCIAL DERIVATIVES are instruments whose value is derived from one or more underlying financial asset. The underlying instrument could be a financial security, a securities index, or some combination of securities, indexes, and commodities.
HISTORY AND EVOLUTION OF DERIVATIVES
The evolution of financial derivatives during the past two decades is related to the fundamental changes that have occurred in the financial markets. Innovations in financial theory and increased computerization, along with changes in the foreign exchange markets, the credit markets and the capital markets over this period, have contributed to the growth of financial derivatives.