In the context of derivatives
the strike price
of an option is a key variable in a financial contract between two parties. Typically an option has positive monetary value if an underlying financial instrument
(e.g. a stock
price, interest rate
or inflation rate
) has a value above (or below depending on the particular type of contract, but not both) the strike price.
In the context of a call option, the payoff is where S is the final of the underlying, K is the strike and where
For a put option
the corresponding payoff is
For a digital option where is the indicator function.