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Derivatives




European Option


An option that can only be exercised on expiration date. An American option, in contrast, may be exercised at any time before, and including, expiration date. Like American options, the payoff of European options is a function of the average price of the underlying asset as on a particular date. In comparison, the payoff of Asian options depends on the average price of the underlying asset over a specific period. Such option names (American, Asian, European, etc) don’t refer to a specific geographical area. Instead, they are just types of options that can be traded anywhere.

European options are classified as European call options and European put options.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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