ET Option Premium
Definition
ET Option Premium. The amount that is paid for an option. That's for the whole contract. Units: The premium is a monetary amount; the rate is a percentage.
The term premium originates because these are in the nature of insurance contract (hedges). this is analogous to Price in other securities or indeed anything; that is, the price is what a party would be willing to pay for something. Just like the price of anything at all, the Option Premium has two value components, one which can be determined (known as Value In Use when applied to products or services) and an element which is more subjective and reflects investor sentiment (for products and services this is the Value In Exchange). For Options, these are Intrinsic Value and Time Value respectively; that is, the intrinsic value can be calculated directly while the Time Value reflects the difference between this and the Premium. Additionally, statistical measures can be used to reduce the level of unknown in the Time Value. Time Value reduces to zero as exercise date approaches. Notes Origin:MB Draft
Disclaimer
This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.
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