Open main menu
Home
Random
Recent changes
Special pages
Community portal
Preferences
About Wikipedia
Disclaimers
Incubator escapee wiki
Search
User menu
Talk
Dark mode
Contributions
Create account
Log in
Editing
Option style
(section)
Warning:
You are not logged in. Your IP address will be publicly visible if you make any edits. If you
log in
or
create an account
, your edits will be attributed to your username, along with other benefits.
Anti-spam check. Do
not
fill this in!
===Composite option=== * A '''[[cross option]]''' (or '''composite option''') is an option on some underlying asset in one [[currency]] with a strike denominated in another currency. For example, a standard [[call option]] on IBM, which is denominated in [[U.S. dollar|dollars]], pays <math>\max(S-K,0) \cdot \text{USD}</math> (where S is the stock price at maturity and K is the strike price). A composite stock option might instead pay <math>\max((S-K),0) FX_T \cdot \text{JPY}</math>, where <math>FX_T</math> is the prevailing exchange rate, that is, <math>FX_T \cdot \text{JPY} = 1 \cdot \text{USD}</math> on the exercise date. The pricing of such options naturally needs to take into account exchange rate volatility and the [[correlation]] between the [[exchange rate]] of the two currencies involved and the underlying stock price.
Edit summary
(Briefly describe your changes)
By publishing changes, you agree to the
Terms of Use
, and you irrevocably agree to release your contribution under the
CC BY-SA 4.0 License
and the
GFDL
. You agree that a hyperlink or URL is sufficient attribution under the Creative Commons license.
Cancel
Editing help
(opens in new window)