A Derivative with a Convex Payoff-Profile at Some Point Before

question 363

Multiple Choice

A derivative with a convex payoff-profile at some point before the option's maturity is a simple plan vanilla option. As the option becomes progressively more-in-the money, the rate at which the position makes money increases until a sympathetically approaches the linear payoff of the future. Similarly, as the option becomes progressively more out-of - the money, the rate at which the position loses money decreases until that rate becomes zero. This is an example of:

• A) Spot rate
• B) Non linear derivate
• C) Linear derivate
• D) None of these

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Definitions:

Payback Period

The length of time required to recoup the initial investment in a project, ignoring the time value of money.

Capital Investment

Funds invested in a business with the aim of furthering its business objectives, such as purchasing assets or funding new growth initiatives.

Fixed Intervals

Regular, predetermined periods of time during which certain activities or operations occur.

Equal Cash Flows

A series of identical cash inflows or outflows occurring over a specified period.