Option: Difference between revisions

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When used for hedging purposes, options generally provide insurance-like protection against worst case outcomes.  (Contrasted with 'fixing' hedging instruments - such as FRAs - which effectively fix the market rate being hedged.)
When used for hedging purposes, options generally provide insurance-like protection against worst case outcomes.   
 
(Contrasted with 'fixing' hedging instruments - such as FRAs - which effectively fix the market rate being hedged.)




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* [[Interest rate guarantee]]
* [[Interest rate guarantee]]
* [[Interest rate option]]
* [[Interest rate option]]
* [[Liquidity event]]
* [[Outright]]
* [[Outright]]
* [[Payoff]]
* [[Payoff]]
* [[Premium]]
* [[Put option]]
* [[Put option]]
* [[Put-call parity theory]]
* [[Put-call parity theory]]
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* [[Underlying asset]]
* [[Underlying asset]]
* [[Underlying price]]
* [[Underlying price]]
* [[Vesting]]
* [[Volatility index]]
* [[Volatility index]]
* [[Warrant]]
* [[Warrant]]


[[Category:Manage_risks]]
[[Category:Manage_risks]]

Latest revision as of 20:19, 29 May 2024

1. Derivative instrument.

A financial option is a derivative instrument giving the holder the right - but not the obligation - to buy or sell an underlying asset on or before a future date at a specified price.

Options are more commonly ‘cash settled’ by paying or receiving a net cash amount, rather than being settled by physical delivery of the underlying asset.


Like other derivative instruments, options can be used to:

• Speculate by creating new exposures to market rates.

• Hedge existing exposures to changes in market rates.

• Arbitrage in combination with other related instruments to achieve 'risk free' profits.


When used for hedging purposes, options generally provide insurance-like protection against worst case outcomes.

(Contrasted with 'fixing' hedging instruments - such as FRAs - which effectively fix the market rate being hedged.)


2.

More generally, choice.


3.

A real option is an option relating to an operational decision or outcome.


See also