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Asymmetric Payoff

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Asymmetric Payoff
A situation in which the settlement valuation on a security changes in a way other than a linear increase or decrease. Options are common instruments with asymmetric payoff. Forwards, on the other hand, generally have symmetric payoff.


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The combined effect of both of "uncertainty" and "managerial flexibility" may generate an asymmetric payoff condition called "contingent claim" where the project's revenue drastically shift and the fact one of the most popular capital budgeting theories, the NPV (Net Present Value) analysis, is limited to assess the value change caused by these asymmetric payoffs makes people seek alternations to resolve this issue.
This issue is similar to that of risk taking in tournaments because stock options generate asymmetric payoffs (i.
It is worth reemphasizing that our definition of asymmetry does not correspond precisely with skewness, or any particular group of moments of the asymmetric payoff distribution.
 
 
 
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