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In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. Options are typically acquired by purchase, as a form of ...
An option that conveys to the owner the right to buy something at a certain price is a "call option"; an option that conveys the right of the owner to sell something at a certain price is a "put option". Both are commonly traded, but for clarity, the call option is more frequently discussed.
Real options valuation, also often termed real options analysis, [1] (ROV or ROA) applies option valuation techniques to capital budgeting decisions. [2] A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project. [3]
Options strategy. Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options' variables. Call options, simply known as Calls, give the buyer a right to buy a particular stock at that option's strike price. Opposite to that are Put options, simply known as Puts ...
In finance, an interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price. An example of a cap would be an agreement to receive a payment for each month the LIBOR rate exceeds 2.5%. Similarly, an interest rate floor is a ...
In finance, a trade is an exchange of a security such as stocks, bonds, commodities, currencies, derivatives or any valuable financial instrument for "cash". Such a financial transaction is usually done by participants of an exchange such as a stock exchange, commodity exchange or futures exchange with a short-dated promise to pay in the currency of the country where the 'exchange' is located.
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (shares); or derivatives (options, futures, forwards).
In financial economics, contingent claim analysis is widely used as a framework both for developing pricing models, and for extending the theory. [6] Thus, from its origins in option pricing and the valuation of corporate liabilities, [7] it has become a major approach to intertemporal equilibrium under uncertainty.