An interest rate call option is a derivative that gives the holder the right, but not the obligation, to pay a fixed rate and receive a floating rate for a specified period.
Interest rate call options can be set in contrast to interest rate put options.
Interest rate requests are used by lending institutions to block interest rates offered to borrowers, among other things.
Investors who want to hedge a position on a loan that pays floating interest rates can use interest rate call options.
A horizontal spread is a simultaneous long and short position in derivatives for the same underlying asset and strike price, but with different expiration dates.
Boundary conditions were used to establish the minimum and maximum possible values of call and put options prior to the introduction of binomial tree and Black-Scholes pricing models.
Deep-in-the-money options have strike prices that are significantly above or below the market price of the underlying asset and thus contain mostly intrinsic value.
Delta hedging is an options strategy that aims to be directional neutral by establishing compensating long and short positions in the same underlying asset.
The extrinsic value is the difference between the market price of an option, also known as its premium, and its intrinsic price, which is the difference between the strike price of the option and the price of the underlying asset.