Term
| Long position (forward contract) |
|
Definition
| Buy the underlying asset at the maturity date |
|
|
Term
| Short position (forward contract) |
|
Definition
| Sells (deliver) the underlying asset at the maturity date |
|
|
Term
| What is the significance of the word "derivitive"? (not the definition) |
|
Definition
| It reflects the linkage of price and payoffs to the current and future values of the underlying asset ie value is derived from price. |
|
|
Term
Options Payoffs-
Short Put |
|
Definition
[image]
Receives Min [0, St-K] |
|
|
Term
Options Payoffs-
Long Put |
|
Definition
[image]
Receives Mas [0, K-St] |
|
|
Term
Option Payoffs-
Long Call |
|
Definition
[image]
Receives Max [0, St-K] |
|
|
Term
Options Payoff-
Short Call |
|
Definition
[image]
Receives Min [0, K-St] |
|
|
Term
| What is the main difference between a long and short position with regards to Options? |
|
Definition
| The long position always pays money up front. |
|
|
Term
|
Definition
| Long position has the right, but not obligation, to purchase the underlying asset as a pre-specified strike price at the maturity date. |
|
|
Term
|
Definition
| Long position has the right, but not the obligation to sell the underlying asset at a pre-specified strike price at the maturity date. |
|
|
Term
|
Definition
| an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost. |
|
|
Term
| American and European Options |
|
Definition
American: Can be exercised anytime between now and the maturity date
European: Can only be exercised on the maturity date |
|
|
