Derivatives In A Real Life
Derivatives have had an important role in finance and real life way before our time. In mathematics, derivatives are the rate of change of a function with respect to the variable. In finance and economics, according to Investopedia, a derivative is a financial security with a value that is relied upon or derived from an underlying asset or group of assets. Derivatives have a big role as to how things play out economically, mathematically and in every day.
As seen in mathematics, derivatives can also be found in the real world, such as economics which is where they are mostly used. Derivatives began their use in ancient history, being seen in 8000 B. C. , Mesopotamia and the Code of Hammurabi, the Middle Ages, and now our economy. derivatives play a big role as to how things play out. An example of them being used is when it comes to interest. When you take apart its elements because the sum of the parts may be greater than the whole depending on your economic interests. So if you have an investment interest that has principal and earns interests, you can seperate the interest element. Someone may buy the interest section because it is the best way to protect some specific economic interest of the company.
One method of approach is called the Generalized Hukuhara derivative approach. According to the academic journal concerning the Generalized Hukuhara derivative approach called Application of Generalized Hukuhara derivative approach in an economic production quantity model with partial trade credit policy under fuzzy environment. In the study, a production inventory model with partial trade credit is formulated and solved in fuzzy environment using the derivative approach. To capture the market, a supplier offers a trade credit period to its retailers. Due to this, the retailer also offers a partial trade credit period to the customer to boost the demand of the item. Usually, demands are generally dependent upon time. Constant demand of an item varies time to time. In this vague situation, demands are taken as time dependent, where its constant part is taken as Left Right - type fuzzy number. In this paper, Generalized Hukuhara derivative approach is used to solve the fuzzy inventory model. Four different cases are considered by using Generalized Hukuhara differentiability and Generalized Hukuhara differentiability. The objective of this paper is to find out the optimal time so as the total inventory cost is minimum. Finally the model is solved by generalized reduced gradient method. The proposed model and technique are illustrated by numerical examples. Some sensitivity analyses both in tabular and graphical forms are presented and the effects of minimum cost with respect to various inventory parameters are discussed.
The Generalized Hukuhara derivative approach gives a new way of approaching and viewing derivatives and their use in economics. In the academic journal called Rethinking economic capital management through the integrated derivative-based treatment of interest rate and credit risk, it revisits how economic capital management regarding banking books of institutions, specifically financial institutions, became exposed to the sovereign debt of the emerging market. They had created a derivative-based integrated approach to quantify economic capital requirements for joint interest rate and credit risk. It’s a relatively new approach on derivatives in economics. Their new framework represents major contributions to the empirical aspects of capital management. It helps shed light on how financial institutions can address hedge strategies against downside risks. The new model also applies historic value-at-risk techniques developed for stand-alone risk factors to evaluate aggregate impacts at several risks. Derivatives are seen all the time in businesses, and can be one of the few reasons you see a change in price on an item, such as a cheeseburger from McDonald’s. In the U. S. , McDonald’s used to sell their cheeseburgers for a little over two dollars, but then recently they knocked down the price to bring back the value menu, at a whopping price of a dollar. But being sold at two dollars a piece, they might have only sold 1, 000 a week. Now, by lowering the price to a dollar, they might be selling 5, 000 a week instead. Derivatives can be used to determine whether businesses like McDonald’s lower their prices to increase sales or not and the could be used to determine a change in the quantity of cheeseburgers sold with respect to a change in a particular independent variable. But the price isn’t the only independent variable that can be used, there are many options such as the pickle being taken off or a new cheese being substituted.
Derivatives aren’t only in finance and economics, they are used in our everyday life. Derivatives can be connected to anything when it has a rate of change, like diving off of a diving board or skydiving. Even while driving, on an electronic odometer, derivatives are used to help transform the data sent to the electronic motherboard from the tires to miles per hour to distance. Many people have difficulty understanding the concept of derivatives and how they affect our day to day lives. Derivatives have an impact on activities of our day to day lives. Whether it is from the speed of our cars or whether a price is decreased at a business, everything is impacted. Derivatives can be found in everything. They are used in finance, mathematics and everything else. There are many ways that they are used as well, many new theories and derivative approaches to do just that.
