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Derivatives and hybrids include options, warrants, futures, convertible debt instruments and callable and putable bonds. These are affected by two broad sets of factors:

• Prices and volatility of underlying instruments. Derivative instrument values are affected by changes in the prices of underlying instruments and by changes in the volatility of these prices. Stock call options, for example, will increase in value if the underlying stock price rises or the level of volatility increases. Discount rate and time. Values are also affected by changes in discount rates used and by the passage of time. The value of a call option, for example, tends towards its intrinsic value as the expiry date approaches.

• The values of hybrids, such as convertible bonds, are affected by the values of the principal instruments and the value of the option-like component taken together. First order price risks are usually taken as being those due to changes in the price of the principal instrument.