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Put A put option (sometimes simply called a "put") is a financial contract between two parties, the buyer and the writer of the option. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer of the option...

Example of a call option on a stock • An investor buys a call on Microsoft Corporation stock with a strike price of $50 and an option expiration date of June 16 2006, and pays a premium of $5 for this call option. The current price is $40. • Assume that the share price (the spot price) rises...

Call A call option is a financial contract between two parties, the buyer and the seller of this type of option. Often it is simply labeled a "call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the...

"Exotic" Options with Standard Exercise Styles These options can be exercised either European style or American style; they differ from the plain vanilla option only in the calculation of their pay-off value: • A cross option (or composite option) is an option on some underlying in one currency...

Non-Vanilla Exercise Rights There are other, more unusual exercise styles in which the pay-off value remains the same as a standard option (as in the classic American and European options above) but where early exercise occurs differently: • A Bermudan option is an option where the buyer has the...

TYPES: Option styles the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options - as well as...

VANILLA A vanilla swap is any swap with fairly standardized provisions. The term is usually applied to vanilla interest rate swaps or vanilla currency swaps. Vanilla swaps are appealing because pricing tends to be transparent and transaction costs are small. Vanilla swaps can be used to...

OPTIONS An option is a contract, or a provision of a contract, that gives one party (the option holder) the right, but not the obligation, to perform a specified transaction with another party (the option issuer or option writer) according to specified terms. The owner of a property might sell...

FINANCIAL DERIVATIVES A derivative instrument (or simply derivative) is a financial instrument which derives its value from the value of some other financial instrument or variable. For example, a stock option is a derivative because it derives its value from the value of a stock. An interest...

FINANCIAL DERIVATIVES complete description....

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