An American Option is a type of options contract that can be exercised on any business day prior to its expiry date, providing flexibility to the option holder. This contrasts with a European Option, which can only be exercised at its expiration date.
Describing a call or put option in which the exercise price is the same (or very nearly the same) as the current market price of the underlying asset.
The Black-Scholes Option Pricing Model, developed by Fischer Black and Myron Scholes, is a mathematical model used to determine the fair value of options by incorporating factors such as volatility, interest rates, stock prices, exercise prices, and time until expiration.
India's leading stock exchange, listing over 5000 companies. The main index is the BSE Sensex of 30 representative stocks. Derivatives have been traded since 2000.
A Credit Default Option (CDO) is an option that grants the holder the right, but not the obligation, to enter into a credit default swap at a predetermined price on a specified future date. It is a form of swaption and is used to hedge against credit risk.
A Credit Default Swap (CDS) is a financial derivative that allows an investor to 'swap' or offset their credit risk with that of another investor.
A financial derivative that functions like an insurance contract where one party pays periodic fees in exchange for compensation in the event of default by a third party, known as the reference entity.
Currency futures are contracts in the futures markets for delivery in a major currency such as U.S. dollars, Euros, or Japanese yen. Corporations that sell products globally can hedge against adverse exchange rate movements using these futures.
A currency swap involves the exchange of principal and interest in one currency for the same in another currency, often to reduce exposure to foreign exchange risk and interest rate risk.
A European Option is a type of financial derivative that can only be exercised on its expiration date, unlike American options, which can be exercised at any time before expiration.
The exercise price, also known as the strike price or striking price, is the predetermined price per share at which an option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying security.
The Federal Crisis Inquiry Commission (FCIC) was a ten-member panel created by President Barack Obama in 2009 to investigate the causes of the financial and economic crisis in the United States.
A forward-rate agreement (FRA) is a contractual agreement between two parties that determines the rate of interest to be paid/ranked on a future loan or deposit. This financial instrument allows parties to lock in interest rates for future transactions, providing a hedge against interest rate fluctuations.
An important accounting practice designed to manage the impact of volatile financial instruments on a company's profit and loss account through the use of financial derivatives to hedge against risk.
Explore index options, which are calls and puts on indexes of stocks, allowing investors to trade in a particular market or industry group without purchasing individual stocks.
An Interest Rate Swap (IRS) is a contractual agreement between two counterparties to exchange periodic payments based on a notional principal amount, typically involving the exchange of a fixed-rate payment stream for a floating-rate payment stream.
A listed option refers to a put or call option that has been authorized for trading on an exchange, also known as an exchange-traded option. These options feature standardized terms and are regulated by a governing body, ensuring fair and transparent trading.
A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.
The phrase 'Put to Seller' is used when a put option is exercised. The option writer is obligated to buy the underlying shares at the agreed-upon price.
A swaption is an option that grants the holder the right, but not the obligation, to enter into an interest rate swap agreement. It is a useful financial instrument for managing interest rate risk.
An underlying futures contract is the specific futures contract that serves as the basis for an option on that future. For example, an option on a U.S. Treasury bond futures contract at the Chicago Board of Trade (CBOT) would have the Treasury bond futures contract as its underlying future.
