The rapid growth of the OTC derivatives market interest rate, currency, equities and, more recently, credit has meant that investors can now assume risks with which they are comfortable, but which instruments in the cash market cannot provide.
It is appropriate to begin with the investors, since their objectives, and the constraints they face in meeting those objectives, are the starting point in structuring a suitable derivative instrument for the investors. They fall in three broad categories portfolio managers, hedge funds and retail investors.
The most general of these three categories is the first, and needs to be subdivided further, since the investment objectives of the various portfolio managers vary significantly. Insurance companies,...
