• Joint option

    An option on an underlying, often a stock index, denominated in a second currency. Unlike a guaranteed exchange rate option, in which exchange rates are fixed, the purchaser of a joint call option benefits from upside in the currency in which the asset is originally denominated, for example, S&P 500 call option struck in euro. In this case, at the inception, strike is specified in euro. At the maturity, S&P 500 level is observed and is multiplied by then current euro/US dollar rate. This converted value of S&P 500 is compared with the strike to determine the payout in euro.

  • Jump diffusion

    One of the key assumptions of the Black-Scholes model is that the asset price follows geometric Brownian motion with constant volatility and interest rates. In a jump diffusion model, it is assumed that, in addition to this regular diffusion, there are jumps in the market. This type of model is sometimes used for modelling equities and emerging market currencies.

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