Options
- Options: an agreement giving the right to buy/sell an underlying asset for a strike (exercise) price \( K \), at a given time \( t \) in the future.
- Contract specifications:
- Asset: the underlying that will be bought/sold (commodities, stocks, currency);
- Quantity: This is standardised across the same class of assets.
- Strike: the price at which the asset will be traded. This is standardised.
- Maturity: the date at which the option expires.
- Exercise date: the date at which the right can be exercised:
- European-style options: the right is can only be exercised at maturity, \( T \).
- American-style options: the right can be exercised at any time \( t \) before maturity, \( T \).
29