Encyclopedia > Strike price

  Article Content

Strike price

In the context of derivatives the strike price of an option is a key variable in a financial contract between two parties. Typically an option has positive monetary value if an underlying financial instrument (e.g. a stock price, interest rate or inflation rate) has a value above (or below depending on the particular type of contract, but not both) the strike price.

In the context of a call option, the payoff is <math>(S-K)^{+}</math> where S is the final of the underlying, K is the strike and where

<math>()^+(x)=\{^{x\ if\ x\geq 0}_{0\ otherwise}</math>

For a put option the corresponding payoff is <math>(K-S)^{+}</math>

For a digital option[?] <math>1_{S\geq K}</math> where <math>1_{\{\}}</math> is the indicator function.

All Wikipedia text is available under the terms of the GNU Free Documentation License

  Search Encyclopedia

Search over one million articles, find something about almost anything!
  Featured Article
Self-modifying code

... code was used in the early days of computers in order to save memory space in computers with very small main memory sizes. It was also used to implement ...