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Options Pricing - Intrinsic Value
An option is said to have intrinsic value where the strike price of the option is more favourable than the current market forward rate.
As a general rule, the greater the intrinsic value of an option the higher its premium.- An option with some intrinsic value is described as being "in-the-money".
- An option with no intrinsic value is said to be "out-of-the-money".
- Where the strike price of the option is equal to the current forward rate the option is said to be "at-the-money".
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