OptionsandFuturesQ:identifythefundamentaldistinctionbetweenafuturescontractandanoptioncontract,andbrieflyexplainthedifferenceinthemannerthatfuturesandoptionsmodifyportfoliorisk.Derivatives(forward,futureandoption):aninvestmentwhosevaluetodayoratsomefuturedateisderivedentirelyfromthevalueofanotherassetorgroupofotherassetsknownastheunderlyingassets.FuturesDefinition:afuturescontractisanagreementthatrequiresapartytoeitherbuyorsellsomethingataspecifiedfuturedateatapredeterminedprice.Afuturecontractisafirmagreementbetweenabuyer(seller)andanestablishedexchangeoritsclearinghouse.Buyerandselleragreetotakeormakedeliveryofsomethingataspecifiedpriceattheendofadesignatedperiodoftime.DifferencebetweenfuturesandoptionContractFutures:itisanobligation.Whenaninvestorpurchasesorsellsafuturescontract,theinvestorhasanobligationtoeitheracceptordeliver,respectively,theunderlyingcommodityontheexpirationdate.Options:forbuyers,itisarightorchoicetoacceptdelivery(forcallholders)ormakedelivery(forputholders)oftheunderlyingcommodityanytimeduringthelifeofthecontract.ExchangeavailabilityFutures:Exchangetradingonly.ExchangeregulationandclearinghousereducecounterpartydefaultriskOptions:Availableonoroffexchanges.ExchangeregulationandclearinghousereducecounterpartydefaultriskforthoseoptionstradedonexchangesPremiumFutures:Nopremiumispayable.(however,marginpaymentsarerequired)Options:premiumshouldbepaid,reducethereturnsMarginFutures:bothpartiesmustdepositaninitialmargin.Thevalueoftheoperationismarkedtomarketrateswithdailysettlementofprofitsandlosses.Options:thebuyerpaysapremiumtotheseller.Thesellerdepositsaninitialmarginwithsubsequentdepositsmadedependingonthemarket.Theunderlyingassetcanbeusedasguarantee.Risk(4图：buyerandselleroffuturescontract,buyerandwriterofoptions)Futures:Buyingorsellingafuturescontractaffectsaportfolio’supsideriskanddownsideriskbyasimilarmagnitude.Thisiscommonlyreferredtoassymmetricalimpact.Ithasunlimitedriskbothsideforbothparties.Options:acallorputop