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Lookback Option
Lookback options, in the terminology of finance, are a type of exotic option with path dependency, among many other kind of options. The payoff depends on the optimal (maximum or minimum) underlying asset's price occurring over the life of the option. The option allows the holder to "look back" over time to determine the payoff. There exist two kinds of lookback options: with floating strike and with fixed strike. Lookback option with floating strike As the name introduces it, the option's strike price is floating and determined at maturity. The floating strike is the optimal value of the underlying asset's price during the option life. The payoff is the maximum difference between the market asset's price at maturity and the floating strike. For the call, the strike price is fixed at the asset's lowest price during the option's life, and, for the put, it is fixed at the asset's highest price. Note that these options are not really options, as they will be always exercised by their ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Administration wich study the planning, organizing, leading, and controlling of an organization's resources to achieve its goals. Based on the scope of financial activities in financial systems, the discipline can be divided into Personal finance, personal, Corporate finance, corporate, and public finance. In these financial systems, assets are bought, sold, or traded as financial instruments, such as Currency, currencies, loans, Bond (finance), bonds, Share (finance), shares, stocks, Option (finance), options, Futures contract, futures, etc. Assets can also be banked, Investment, invested, and Insurance, insured to maximize value and minimize loss. In practice, Financial risk, risks are always present in any financial action and entities. Due ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Exotic Option
In finance, an exotic option is an option which has features making it more complex than commonly traded vanilla options. Like the more general exotic derivatives they may have several triggers relating to determination of payoff. An exotic option may also include a non-standard underlying instrument, developed for a particular client or for a particular market. Exotic options are more complex than options that trade on an exchange, and are generally traded over the counter. Etymology The term "exotic option" was popularized by Mark Rubinstein's 1990 working paper (published 1992, with Eric Reiner) "Exotic Options", with the term based either on exotic wagers in horse racing, or due to the use of international terms such as "Asian option", suggesting the "exotic Orient". Journalist Brian Palmer used the "successful $1 bet on the superfecta" in the 2010 Kentucky Derby that "paid a whopping $101,284.60" as an example of the controversial high-risk, high-payout exotic bets ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Option Style
In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options—as well as others where the payoff is calculated similarly—are referred to as " vanilla options". Options where the payoff is calculated differently are categorized as "exotic options". Exotic options can pose challenging problems in valuation and hedging. American and European options The key difference between American and European options relates to when the options can be exercised: * A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. * An American option on the other hand may be exercised at any time before the expiration date. For both, the payoff—when it occurs—is given by * \max\, for a call option * \max\, for a put option where K is the strike ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk-free Interest Rate
The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free rate can be obtained with no risk, any other investment having some risk will have to have a higher rate of return in order to induce any investors to hold it. In practice, to infer the risk-free interest rate in a particular currency, market participants often choose the yield to maturity on a risk-free bond issued by a government of the same currency whose risks of default are so low as to be negligible. For example, the rate of return on zero-coupon Treasury bonds (T-bills) is sometimes seen as the risk-free rate of return in US dollars. Theoretical measurement As stated by Malcolm Kemp in chapter five of his book ''Market Consistency: Model Calibration in Imperfect Markets'', the risk-free rate means different things to different pe ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Standard Normal
In probability theory and statistics, a normal distribution or Gaussian distribution is a type of continuous probability distribution for a real-valued random variable. The general form of its probability density function is f(x) = \frac e^\,. The parameter is the mean or expectation of the distribution (and also its median and mode), while the parameter \sigma^2 is the variance. The standard deviation of the distribution is (sigma). A random variable with a Gaussian distribution is said to be normally distributed, and is called a normal deviate. Normal distributions are important in statistics and are often used in the natural and social sciences to represent real-valued random variables whose distributions are not known. Their importance is partly due to the central limit theorem. It states that, under some conditions, the average of many samples (observations) of a random variable with finite mean and variance is itself a random variable—whose distribution conver ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Cumulative Distribution Function
In probability theory and statistics, the cumulative distribution function (CDF) of a real-valued random variable X, or just distribution function of X, evaluated at x, is the probability that X will take a value less than or equal to x. Every probability distribution Support (measure theory), supported on the real numbers, discrete or "mixed" as well as Continuous variable, continuous, is uniquely identified by a right-continuous Monotonic function, monotone increasing function (a càdlàg function) F \colon \mathbb R \rightarrow [0,1] satisfying \lim_F(x)=0 and \lim_F(x)=1. In the case of a scalar continuous distribution, it gives the area under the probability density function from negative infinity to x. Cumulative distribution functions are also used to specify the distribution of multivariate random variables. Definition The cumulative distribution function of a real-valued random variable X is the function given by where the right-hand side represents the probability ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Options (finance)
In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. Options are typically acquired by purchase, as a form of compensation, or as part of a complex financial transaction. Thus, they are also a form of asset (or contingent liability) and have a valuation that may depend on a complex relationship between underlying asset price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option. Options may be traded between private parties in '' over-the-counter'' (OTC) transactions, or they may be exchange-traded in live, public markets in the form of standardized contracts. Definition and application An option is a contract that allows the holder the right to buy or sell an underlying asset or financial ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
