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    In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value at its expiration. An option is at-the-money if the strike price, i.e., the price the option holder must pay to exercise the option, is the same as the current price of the underlying security. An out-of the-money option currently has no intrinsic value.

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    In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value at its expiration. An option is at-the-money if the strike price, i.e., the price the option holder must pay to exercise the option, is the same as the current price of the underlying security. An out-of the-money option currently has no intrinsic value.

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    16 views1 page

    Moneyness

    Uploaded by

    meetwithsanjay
    In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value at its expiration. An option is at-the-money if the strike price, i.e., the price the option holder must pay to exercise the option, is the same as the current price of the underlying security. An out-of the-money option currently has no intrinsic value.

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    Moneyness - Wikipedia, the free encyclopedia http://en.wikipedia.

    org/wiki/Moneyness

    Moneyness
    From Wikipedia, the free encyclopedia.

    In finance, moneyness is a measure of the degree to which a derivative security is likely to have positive monetary value
    at its expiration.

    An option is at-the-money if the strike price, i.e., the price the option holder must pay to exercise the option, is the same
    as the current price of the underlying security on which the option is written. An out-of-the-money option currently has
    no intrinsic value - e.g. a call option is out-the-money if the strike price ("the strike") is higher than the current underlying
    price. An in-the-money option conversely does have intrinsic value. The strike price of an in-the-money call option is
    lower than the current underlying price.

    For example suppose the current stock price of IBM is $100. A call or put option with a strike of $100 is at-the-money. A
    call option with a strike of $80 is in-the-money (100 - 80 = 20 > 0). A put option with a strike at $80 is out-of-the-money
    (80 - 100 = -20 < 0). Conversely a call option with a $120 strike is out-of-the-money and a put option with a $120 strike is
    in-the-money.

    When one uses the Black-Scholes model to value the option, one may define moneyness quantitatively. If we define the
    moneyness as

    where d1 and d2 are the standard Black-Scholes parameters then

    This choice of parameterisation means that the moneyness is zero when the forward/underlying price matches the strike
    after discounting at the risk-free rate. Such an option is often referred to as at-the-money-forward. Moneyness is
    measured in standard deviations from this point, with a positive value meaning an in-the-money option and a negative
    value meaning an out-of-the-money option.

    See also
    Financial mathematics

    Retrieved from "http://en.wikipedia.org/wiki/Moneyness"

    Categories: Derivatives

    This page was last modified 19:49, 9 July 2005.


    All text is available under the terms of the GNU Free Documentation License (see Copyrights for
    details).

    1 of 1 9/1/2005 6:51 PM

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