How Does an Options Exchange Determine the Final Settlement Price?
The final settlement price for a cash-settled option is typically determined by calculating an average of the underlying asset's price from a designated set of spot or index exchanges over a specified time period leading up to expiration. This averaging process is designed to prevent market manipulation of the final settlement price and reduce volatility risk at the exact moment of expiry.
Glossar
Final Settlement Price
Valuation ⎊ The Final Settlement Price in cryptocurrency derivatives represents the agreed-upon value of the underlying asset at contract expiration, crucial for determining payouts in options and futures.
Market Manipulation
Influence ⎊ The deliberate manipulation of market prices or trading activity to create a false or misleading impression of supply and demand, impacting investor decisions and potentially generating illicit profits.
Final Settlement
Resolution ⎊ Final Settlement, within cryptocurrency derivatives and financial markets, signifies the conclusive determination of obligations arising from a contract, typically involving a cash or asset transfer to extinguish all outstanding commitments.
Index Exchanges
Architecture ⎊ Index Exchanges, within cryptocurrency derivatives, represent the foundational infrastructure enabling the aggregation of liquidity from multiple sources, functioning as central connection points for buyers and sellers of digital asset options and futures.
Settlement Price
Price ⎊ The settlement price, within cryptocurrency derivatives, options trading, and broader financial derivatives contexts, represents the final agreed-upon value at which a contract expires or is otherwise terminated.