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Master Class: Derivative products: Exotic Options

Exotic Options Exotic Options can be path dependent or correlation based. Path-dependent options are dependent on the route prices of the underlying asset take through the life of the option (not just the terminal price or rate at maturity). Bermuda option This is a blend

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Master Class: Derivative Products: Vanilla products

There are three major categories of derivative instruments- options, forwards and futures, and swaps. A quick comparison of their characteristics is given in the table below: Option Forward Future Swap Downside Protection ü ü ü ü Upside Potential ü Initial Cost ü Credit Risk ü

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Master Class: Derivative Products: Review

A second look at derivative contracts A typical derivative deal comes with a long list of qualifications that are presented and shared with customers in the form of a term sheet. A term sheet is generally executed as a legally binding document with a number

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Option Payoff profiles – Calls and Puts

Option Payoff profiles for Calls and Puts Compare this to the pay off profile for an option contract.  Unlike a forward, there is only a limited downside with option contracts. An option gives its owner the right to exercise but not the obligation to perform