Economics Derivatives Questions
Derivatives contribute to price discovery by providing a platform for market participants to speculate on and hedge against future price movements. Through the trading of derivatives such as futures and options, market participants can express their views on the future direction of prices, which helps in determining the fair value of the underlying asset. The continuous buying and selling of derivatives contracts leads to the aggregation of market information and the formation of consensus expectations about future prices. This process of price discovery helps in establishing efficient and transparent markets, as well as providing valuable information for investors and businesses to make informed decisions.