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Strike price

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.