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AC-DC Option Definition
An AC-DC Option is an option that allows investors trade (buy and sell) at a specified price but with no obligation. This means that investors have the right to trade at a specific price but are not mandated to do so, it is optional. AC-DC is a derivative and not the same as time to purchase.
This option enables investors to make decisions as to whether to purchase or sell an instrument on a future date. AC-DC Option can also be a call option which is done based on the discretion and choice of the buyer.
A Little More on What is an AC-DC option
AC-DC options are selection options. Quite a number of AC-DC options are European options, this option can be used the owner of an instrument for a period of time. Often, the exercise date and selling price are set in these options.
AC-DC options are quite useful during market volatility, when a company’s security is highly vulnerable, this option can be applied.
The compensation method used for the analysis of sales options is also applicable to the AC-DC options but with little considerations. The profitability of a position, the ability of the investor to select payment, among other factors are considered when calculating compensation.
Securities that are traded higher than the strike (market) price are more profitable than other counterparts, so also the compensation that the owner will receive.
References for AC-DC Option
Academic Research for AC DC Option
Normalized particle swarm optimization for complex chooser option pricing on graphics processing unit, Sharma, B., Thulasiram, R. K., & Thulasiraman, P. (2013). The Journal of Supercomputing, 66(1), 170-192.
Exotic Options: a Chooser Option and its Pricing, Martinkute-Kauliene, R. (2012). Business, Management and Education, 10(2), 289.
American chooser options, Detemple, J., & Emmerling, T. (2009). Journal of Economic Dynamics and Control, 33(1), 128-153.
Portfolio management using particle swarm optimization on GPU, Sharma, B., Thulasiram, R. K., & Thulasiraman, P. (2012, July). In Parallel and Distributed Processing with Applications (ISPA), 2012 IEEE 10th International Symposium on (pp. 103-110). IEEE.
Delta and gamma for chooser options, Ďurica, M. A. R. E. K., & Švábová, L. U. C. I. A. (2014). In International Scientific Conference Applications of Mathematics and Statistics in Economics AMSE 2015 Full paper proceedings (pp. 75-84).
The pricing of dual-expiry exotics, Buchen, P. W. (2004). Quantitative Finance, 4(1), 101-108.
Suggested refinements to courses on derivatives: presentation of valuation equations, pay off diagrams and managerial application for second generation options, Deacon, C., Faseruk, A., & Strong, R. (2004). Journal of Financial Management & Analysis, 17(1), 62.
The Decision-making Analysis of Multinational Enterprise Investment under Interest Rate Uncertainty, Lung, T. Y. (2014). Journal of Statistics and Management Systems, 17(4), 349-363.
Dynamic market entry and the value of flexibility in transitional international joint ventures, Lukas, E. (2007). Review of Financial economics, 16(1), 91-110.
On persistent pursuits of self-interest, Mithaug, D. E. (2005). Research and Practice for Persons with Severe Disabilities, 30(3), 163-167.
Evolving economy bank asset‐liability and risk management under uncertainty with hierarchical objectives and nonlinear pricing, Dash Jr, G. H., & Kajiji, N. (2002). Journal of Multi‐Criteria Decision Analysis, 11(4‐5), 247-260.
The Pricing of European Complex Chooser Option in Fractional Jump-diffusion Process, Yun, N. S. X. (2012). Mathematical Theory and Applications, 2, 007.