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  1. 1 Kozgazdasagi Szemle (Economic Review)

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  1. 1 Radnai M.

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  1. 1 2005

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Indexed options based on the underlying price

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Radnai M.
Kozgazdasagi Szemle (Economic Review)
|
2005
|
vol. 52
|
issue 2
130-143
EN
Indexed options are ones that can only be exercised at a profit if the yield of the stock concerned exceeds the yield of a certain index. The article shows that structures published so far, in which the call option is indexed to the exercise price of the instrument, does not filter out all index risk. A proposal is made for a new type of indexed option, indexed to the price of the underlying product, so that all index risk is eliminated. The valuation relations of these options are provided and it is shown that they can be used not only for executive remuneration, but in stock-market trading as well.
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