Over the last three decades, the derivatives market has seen a phenomenal growth. A large variety of derivative contracts have been launched at exchanges across the world. Some of the factors driving the growth of financial derivatives are:
- Increased volatility in asset prices in Financial Markets.
- Increased integration of national financial markets with the International markets.
- Marked improvement in communication facilities and sharp decline in their costs.
- Development of more sophisticated risk management tools, providing economic agents a wider choice of risk management strategies.
- Innovations in the derivatives markets, which optimally combine the risks and returns over a large number of financial assets leading to higher returns, reduced risks and costs as compared to individual financial assets.
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