Managing Risk Exposures

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 FuturesTypical 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 PayoffsForwards, Futures, Total Return Swaps
Performing Asset Allocation and Portfolio RebalancingEquity Index Futures, Government Bond Futures, Index Swaps
Inferring Market Expectations for Interest Rates, Inflation, and VolatilityFed Funds Futures, Inflation Swaps, VIX Futures

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