Week 7 Flashcards
1
Q
Call option
A
Gives owner right to buy stock at a specified exercise/ strike price on or before specified maturity date
2
Q
European call
A
Option can only be exercised on maturity date
3
Q
American call
A
On or at any time before maturity date
4
Q
Put option
A
Right to sell the share
5
Q
Put-call clarity
A
Two investment strategies give identical results
6
Q
Replication portfolio
A
Buy stock in such a way that we have an exact replica of the payoff from a call option
7
Q
Hedge ratio
A
Number of shares needed to replicate one call
8
Q
Derivatives
A
Variety of specialized tools for hedging risks
9
Q
Insurance
A
Transfer risk to the insurance company
10
Q
Catastrophe bond
A
If catastrophe occurs, payment on said bond is reduced/ eliminated
