A derivative instrument is a contract instrument for executing a transaction at some future time. Fundamentally speaking, there are only three kinds of derivatives-forwards, swaps and options. Futures contract is a standardized contract made by our institute, which stipulates to deliver a certain quantity and quality of physical or financial goods at a specific time and place in the future. Swaps, also known as swaps, refers to derivatives that stipulate that two or more parties exchange a series of cash flows within the agreed time according to the terms of the agreement.

Option refers to the right to buy and sell in a certain period of time in the future. It means that the buyer has the right to buy or sell a certain number of specific subject matter from the seller at a predetermined price (referring to the strike price) in a certain period (referring to American options) or at a certain future date (referring to European options), but has no obligation to buy or sell. The following will introduce some basic theories of financial derivatives pricing.