Chapter 3 Derivatives (2) Flashcards
1
Q
Long and short position (Forward contracts)
A
Long: Party that agrees to buy the underlying asset
Short: Party that agrees to sell the underlying asset
2
Q
Payoff from long position in forward contract
A
S_T - K
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
3
Q
Payoff from short position in forward contract
A
K - S_T
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
4
Q
American vs. European option
A
American: Can be exercised at any point until the expiry date
European: Can only be exercised on the expiry date
5
Q
Payoff from call option (Buyer/Long position)
A
min(S_T - K, 0) - C
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
- C: Price (/Premium) for the option
6
Q
Payoff from call option (Seller/Short position)
A
C - min(S_T - K, 0)
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
- C: Price (/Premium) for the option
7
Q
Payoff from put option (Buyer/Long position)
A
max(K-S_T, 0) - P
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
- P: Price (/Premium) for the option
8
Q
Payoff from put option (Seller/Short position)
A
P - max(K-S_T, 0)
Where:
- S_T: Spot price of the underlying at time T
- K: Strike Price of the contract
- C: Price (/Premium) for the option
