LBP and Option: Difference between pages
imported>Doug Williamson (Add links.) |
imported>Doug Williamson (Add link.) |
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1. | |||
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 == | == See also == | ||
* [[ | * [[American-style option]] | ||
* [[ | * [[Asian option]] | ||
* [[ | * [[Barrier 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]] | ||
* [[Futures 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 23:21, 3 August 2020
1.
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
- American-style option
- Asian option
- Barrier 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
- Futures 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
