There are many ways in which investment managers and investors can use swaps, forwards, futures, and volatility derivatives. The typical applications of these derivatives involve modifying investment positions for hedging purposes or for taking directional bets, creating or replicating desired payoffs, implementing asset allocation and portfolio rebalancing decisions, and even inferring current market expectations.
| Common Uses of Swaps, Forwards, and Futures | Typical Derivatives Used |
|---|---|
| Modifying Portfolio Returns and Risk Exposures (Hedging and Directional Bets) | Interest Rate, Currency, and Equity Swaps and Futures; Fixed-Income Futures; Variance Swaps |
| Creating Desired Payoffs | Forwards, Futures, Total Return Swaps |
| Performing Asset Allocation and Portfolio Rebalancing | Equity Index Futures, Government Bond Futures, Index Swaps |
| Inferring Market Expectations for Interest Rates, Inflation, and Volatility | Fed Funds Futures, Inflation Swaps, VIX Futures |