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Derivatives

  Derivatives   |   Terms
  • 337
  • February 20, 2022
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Conditional Premium

The premium of an option (known as a conditional option) which adjusts in reaction to the fluctuation of the real spot price. The premium level is, thus, subject to a specific condition to the effect that it (i.e., the premium) becomes higher than that of a basic option (vanilla option) if the condition is in favor of the holder. However, no premium will be paid if the condition is unfavorable to the holder. For example, a conditional currency option gives the holder the choice to not pay the premium as long as the sport price doesn’t move beyond a particular level.


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