imported>Doug Williamson |
imported>Doug Williamson |
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| | Risk-Free Rate. |
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| 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.
| | The abbreviation 'RFR' usually refers to risk-free benchmark interest rates, such as SONIA. |
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| 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.
| | Also known as ''near'' risk-free rates, recognising that such rates are never entirely risk-free. |
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| Like other derivative instruments, options can be used to:
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| • Speculate by creating new exposures to market rates.
| | Theoretically risk free rates of ''investment'' return, for example in the Capital asset pricing model, are more often designated by 'Rf' or 'rf'. |
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| • Hedge existing exposures to changes in market rates.
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| • Arbitrage in combination with other related instruments to achieve 'risk free' profits.
| | ==See also== |
| | *[[Capital asset pricing model]] |
| | *[[RFR WG]] |
| | *[[Risk-free rate of return]] |
| | *[[Risk-free rates]] |
| | *[[SONIA]] |
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| | | [[Category:Corporate_financial_management]] |
| 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.)
| | [[Category:Financial_products_and_markets]] |
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| More generally, choice.
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| 3.
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| A real option is an option relating to an operational decision or outcome.
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| == See also ==
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| * [[American-style option]]
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| * [[Asian option]]
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| * [[Binomial option pricing model]]
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| * [[Black Scholes option pricing model]]
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| * [[Call option]]
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| * [[Cash settlement]]
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| * [[Delta]]
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| * [[Derivative instrument]]
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| * [[European-style option]]
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| * [[Exercise]]
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| * [[Exotic option]]
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| * [[Fixing]]
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| * [[Fixing instrument]]
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| * [[Foreign exchange forward contract]]
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| * [[Greeks]]
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| * [[Hedging]]
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| * [[Insurance]]
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| * [[Interest rate guarantee]]
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| * [[Interest rate option]]
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| * [[Outright]]
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| * [[Payoff]]
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| * [[Put option]]
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| * [[Put-call parity theory]]
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| * [[Real option]]
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| * [[Straddle]]
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| * [[Strike price]]
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| * [[Swaption]]
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| * [[Traded option]]
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| * [[Underlying asset]]
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| * [[Underlying price]]
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| * [[Volatility index]]
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| * [[Warrant]]
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Risk-Free Rate.
The abbreviation 'RFR' usually refers to risk-free benchmark interest rates, such as SONIA.
Also known as near risk-free rates, recognising that such rates are never entirely risk-free.
Theoretically risk free rates of investment return, for example in the Capital asset pricing model, are more often designated by 'Rf' or 'rf'.
See also