Derivative Flashcards
1
Q
What is American option?
A
The option that can be used at anytime before maturity. There is no difference in value comparing to European option if underlying asset does not pay any cash flow.
2
Q
What is European option?
A
The option that can be used only at the maturity.
3
Q
What is time value?
A
The amount by which option’s price is greater than its exercise value.
4
Q
What is the convenience yield?
A
Nonmonetary benefits of holding an asset.
5
Q
What is the net cost of carry?
A
The costs of holding the asset, net of the monetary and nonmonetary benefits of holding it, is referred as the net cost of carry.
6
Q
What kind of portfolio has the same future cash flows a put option?
A
Long call option, long risk-free bond, short underlying asset.
