Derivatives - Derivatives Section 2

A hedge portfolio is formed that eliminates arbitrage opportunities.

The payoff of the underlying is adjusted upward by the derivative value.

The expected future payoff of the derivative is discounted at the risk-free rate plus a risk premium.

give away a risk premium because they enjoy taking risks.

expect a risk premium to compensate for the risk.

require no premium to compensate for assuming risk.

increases with the risk aversion of an investor.

decreases with the risk aversion of an investor.

is not impacted by the risk aversion of an investor.

The forward price is fixed at the start, and the value starts at zero and then changes.

The value is fixed at the start, and the forward price starts at zero and then changes.

The price determines the profit to the buyer and the value determines the profit to the seller.