The Derivatives component covers the entire transaction process, which includes FRAs and trading with OTC options, swaps, caps/floors, foreign exchange and listed options and futures. This process spans the whole trading procedure, from entering the transaction and processing it to transferring the data to Financial Accounting.

Derivatives play an important role in interest and currency management. To manage risk, it is essential that you first analyze the current situation based on up-to-date market data. This requires an aggregated examination of underlying transactions and associated hedge transactions on a comparable basis. For derivatives, and options in particular, this results in the instruments being represented as delta equivalents. Consequently, the risk analysis and the decision making process only includes the volume of all the positions examined that is actually subject to market fluctuations. In addition to analyzing the exposure and the market values, you also need to take the special nature of derivatives into account when reviewing your liquidity situation. In contrast to the classical financial instruments, derivative instruments generate cash flows which have an element of uncertainty (either the amount is uncertain or the amount and the likelihood of occurrence are uncertain) in addition to fixed cash flows. In Market Risk Management, you can display and simulate these cash flows (variable payments of a swap, options). As derivatives are dependent on variable financial market values (such as reference interest rates), access to realtime datafeed, which provides up-to-the minute market price information, is an advantage. In the trading area, an option price calculator helps you calculate prices.

The product types in the Derivatives area are:

• Swaps

• Interest Rate Swap
• Currency Swap
• Discount Swap
• Compound Swap

• Forward rate agreement (FRA)
• Caps / Floors

• Currency option
• Currency barrier option
• Swaption
• Interest rate guarantee (IRG)
• Security option
• Compound option

• Listed options and futures

The following graphic shows how the various Derivatives components relate to one another:

You arrive at the Derivatives component, proceed as follows: