September 2010
Beginner to intermediate
288 pages
8h 43m
English
book
Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options, Second Edition
by Andrew M. Chisholm
Content preview from Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options, Second Edition
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
Appendix B
Exotic Options
The term ‘exotic option’ is a rather loose one, but it is conventionally used to describe later generation options whose terms differ in some way from the standard terms of a vanilla call or put option. This Appendix describes briefly some of the key structures used in the markets.
Asian or average price options
The payoff from an average price call is zero or the average price of the underlying over a predetermined period of time minus the strike, whichever is the greater. The payoff from an average price put is zero or the strike minus the average price of the underlying over a set period of time, whichever is the greater.
Asian options are generally less expensive than conventional options since averaging prices over a period of time has the effect of lowering volatility. The more frequently the averaging is carried out the greater this effect, so that daily averaging reduces volatility more than weekly or monthly averaging. For the same reason geometric averaging reduces volatility more than arithmetic averaging.
A further variant is the average strike option. Here the price of the underlying over some period of time is averaged out and the strike price is set to that average. The payout of an average strike call is zero or the difference between the price of the underlying and the strike on exercise, whichever is the greater.
Barrier options
The payoff from a barrier option depends on whether or not the price of the underlying reaches a certain ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.