Options I

Moorad Choudhry, Didier Joannas, Gino Landuyt, Richard Pereira and Rod Pienaar
Additional contact information
Moorad Choudhry: Europe Arad Bank plc
Didier Joannas: Thomson Reuters-Risk in North Asia
Gino Landuyt: Europe Arad Bank plc
Rod Pienaar: UBS AG prime services

Chapter 17 in Capital Market Instruments, 2010, pp 341-350 from Palgrave Macmillan

Abstract: Abstract As a risk management tool, options allow banks and corporates to hedge market exposure but also to gain from upside moves in the market; this makes them unique amongst hedging instruments. Options have special characteristics that make them stand apart from other classes of derivatives. As they confer a right to conduct a certain transaction, but not an obligation, their payoff profile is different from other financial assets, both cash and off-balance sheet (OBS). This makes an option more of an insurance policy rather than a pure hedging instrument, as the person who has purchased the option for hedging purposes need only exercise it if required. The price of the option is in effect the insurance premium that has been paid for peace of mind.

Keywords: Option Price; Call Option; Future Contract; Strike Price; Underlying Asset (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-27938-4_17

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DOI: 10.1057/9780230279384_17

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