Does anyone have an example of where derivatives are used in business or economic applications?? Please help me!!
2007-10-28 14:16:15 · 3 answers · asked by Anonymous in Social Science ➔ Economics
Do you mean "derivative securities" like options and futures?
Or do you mean mathematical derivatives from Calculus.
Mathematical derivatives are used for lots of things in business. The firm wants to maximize its profit -- so it gets a mathematical equation for its profit as a function of price, takes the first derivative & uses it to find the price that gives them the maximum profit.
In finance, it is used to measure risk. A bond portfolio manager takes the first derivative of his portfolio value with respect to interest rates to find out how much he will gain or lose if interest rates change.
Derivatives are used all the time in economics.
2007-10-28 16:08:34 · answer #1 · answered by Ranto 7 · 1⤊ 0⤋
Derivatives usually refer to futures and options. Investment houses, banks, companies all use derivatives to migitate risk. For e.g. an airline company would buy oil futures contracts in order to safeguard against sudden oil price increases.
2007-10-28 22:46:04 · answer #2 · answered by floozy_niki 6 · 0⤊ 0⤋
stochastic calculus uses derivatives, often in probability theory. Black-Schols Theory, Ito's Lemma, etc.
2007-10-28 21:21:30 · answer #3 · answered by bent_reticence 2 · 0⤊ 1⤋