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- In finance, option on realized volatility (or volatility option) is a subclass of derivatives securities that the payoff function embedded with the notion of annualized realized volatility of a specified underlying asset, which could be stock index, bond, foreign exchange rate, etc. Another product of volatility derivative that is widely traded refers to the volatility swap, which is in another word the forward contract on future realized volatility. The long position of the volatility option, like the vanilla option, has the right but not the obligation to trade the annualized realized volatility interchange with the short position at some agreed price (volatility strike) at some predetermined point in the future (expiry date). The payoff is commonly settled in cash by some notional amount. What distinguishes this financial contract from ordinary options is that the risk measure is irrespective of the asset returns but belongs purely to the price volatility. As a result, traders can use it as a tool to speculate on price volatility movements in order to hedge their portfolio positions without taking a directional risk by holding the underlying asset. (en)
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- 10169 (xsd:nonNegativeInteger)
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- In finance, option on realized volatility (or volatility option) is a subclass of derivatives securities that the payoff function embedded with the notion of annualized realized volatility of a specified underlying asset, which could be stock index, bond, foreign exchange rate, etc. Another product of volatility derivative that is widely traded refers to the volatility swap, which is in another word the forward contract on future realized volatility. (en)
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- Option on realized volatility (en)
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