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  • The Financial Encyclopedia
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Derivatives

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  • August 1, 2021
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Concave Payoff

A payoff (of some derivative instrument) whose amount is a concave function of the value of the underlying instrument. The compensation is asymmetric: the holder gets more (higher payoff) for small changes in the price of the instrument and less (lower payoff) for large changes in the price of the instrument.

Concave payoffs are less risky than convex payoffs.


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