If you had the option of signing a contract today to buy a scoop of ice cream from me in one month, and to pay 90% of the price of a loaf of bread on that day for it, would you take it? If so, you and I have just entered into the derivatives business. That is, if I understood correctly what Julien Glachon, financial risk management officer in the derivatives division of the European Investment Bank, was telling us on this week’s show of ‘A Dictionary of Finance’. He talks about plain vanilla derivatives, which, unfortunately, are not edible: the put option and the call option are basic forms of derivatives. Glachon also describes how bankers use mathematical formulas that calculate the price for a derivative and then use software to monitor the underlying conditions (e.g. prices of the assets that the derivative is linked to) to constantly calculate a price for the derivative. We also learn about a replication portfolio, which helps make sure your trading partner can sell you that scoop in various market conditions.