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Derivatives

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  • July 15, 2021
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Time-Dependent Option

An option contract whose payoff depends on the price of an regular option at a single future time. For instance, a chooser option is a time-dependent option which allows the holder to choose between receiving a standard call option or a standard put option at a preset date in the future. Similarly, the buyer of a forward start option will be required to pay premium today for an option that comes into effect in the future, with a strike price set equal to the underlying price on agreed-upon start date. Other examples of time-dependent options include: compound options, cliquet options, periodic caps, periodic floors, etc.


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