Option and RFR: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Link with Foreign exchange forward contract page.)
 
imported>Doug Williamson
(All link to O/N page.)
 
Line 1: Line 1:
1.  
Risk-Free Rate.


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.


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.


Like other derivative instruments, options can be used to:


• 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'.


• Hedge existing exposures to changes in market rates.


• Arbitrage in combination with other related instruments to achieve 'risk free' profits.
==See also==
*[[Capital asset pricing model]]
*[[O/N]]
*[[RFR WG]]
*[[Risk-free rate of return]]
*[[Risk-free rates]]
*[[SONIA]]


 
[[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]]
 
 
2.
 
More generally, choice.
 
 
3.
 
A real option is an option relating to an operational decision or outcome.
 
 
== See also ==
* [[American-style option]]
* [[Binomial option pricing model]]
* [[Black Scholes option pricing model]]
* [[Call option]]
* [[Cash settlement]]
* [[Delta]]
* [[Derivative instrument]]
* [[European-style option]]
* [[Exercise]]
* [[Exotic option]]
* [[Fixing]]
* [[Fixing instrument]]
* [[Foreign exchange forward contract]]
* [[Greeks]]
* [[Hedging]]
* [[Insurance]]
* [[Interest rate guarantee]]
* [[Interest rate option]]
* [[Outright]]
* [[Payoff]]
* [[Put option]]
* [[Put-call parity theory]]
* [[Real option]]
* [[Straddle]]
* [[Strike price]]
* [[Swaption]]
* [[Traded option]]
* [[Underlying asset]]
* [[Underlying price]]
* [[Volatility index]]
* [[Warrant]]

Revision as of 12:29, 24 March 2019

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