Zero-Cost Option Products Analysis of the Czech Banks to the Enterprises

Abstract

The paper deals with zero-cost option structures which has become a popular tool of hedging. They come from a combination of standard and exotic option. They always contain purchased and sold options whose values are equal. The most popular is zero-cost collar strategy. The banks say that any structure can be practically built as zero-cost and they offer many option products as zero-cost. They particularly use exotic options for it. there fore there are 3 selected option products analysed in this paper. In two of them, the theoretical findings are also checked in particular option contract. The goal of this paper is to find out whether it is possible to analyse the products simply and quickly and whether they are understandable for enterprises. The understandability is the basic requirement for correct using and setting of strategy to the come be tool of the enterprise´s currency risk management. It showed up that the collar strategy can be analysed quite simply. An analysis of strategies including exotic options comes to the conclusion that there are too many parameters which can cause incorrect strategy settings.