Derivatives Flashcards
(10 cards)
1
Q
Forward payoff
A
Payoff = S(T) - K; gain if price > strike, loss if price < strike.
2
Q
Call option payoff
A
Payoff = max(S(T) - K, 0); right to buy at strike.
3
Q
Put option payoff
A
Payoff = max(K - S(T), 0); right to sell at strike.
4
Q
Digital option payoff
A
Payoff = 1 if price in [a,b] at T; otherwise 0.
5
Q
Chooser option payoff
A
Payoff = max(call, put) at T; you choose best payoff.
6
Q
Put–Call Parity
A
C - P = F - D·K (forwards) or S₀ - D·K (no dividends).
7
Q
Binomial replication
A
Find Δ and cash by matching payoffs in up/down states.
8
Q
Risk-neutral pricing
A
Price = e^{-rT}(q_u·payoff_up + q_d·payoff_down) using risk-neutral q.
9
Q
Monte Carlo pricing
A
Take average of many simulated discounted payoffs.
10
Q
Black–Scholes
A
Benchmark of continuous state
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