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.
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