Which of the following has an asymmetric return profile?
A)Forward contracts
B)Futures contracts
C)Options
D)Swaps

Question

Which of the following has an asymmetric return profile?
A)​Forward contracts
B)​Futures contracts
C)​Options
D)​Swaps

Quizplus · Accepted Answer

Options have an asymmetric return profile as they provide the buyer with the right, but not the obligation, to buy or sell an underlying asset at a specific price (strike price) on or before a specific date (expiration date). If the market price of the underlying asset moves in the buyer's favor, they can exercise the option and realize a profit. However, if the market price moves against the buyer, they can simply let the option expire and only lose the premium paid for the option. Therefore, options have limited downside risk but unlimited upside potential, which is an asymmetric return profile. Forward contracts, futures contracts, and swaps all have symmetric return profiles.

Which of the Following Has an Asymmetric Return Profile