Analysis of a Financial Claim

Consider a risky asset with an initial value of $10$ (i.e $S_0=10$ at time $t=0$), time $t=1$, $S_1={3,14}$, and a financial claim at time $t=1$: $F = 0$ if $S_1=3$ and $F=5$ if $S_1=14$.

Type of Financial Claim

The financial claim described above is a 'put option', since the holder of the claim has the right to sell the risky asset at a pre-determined price.

Strike Price

The price at which the holder of the financial claim has the right to sell the risky asset is known as the 'strike price'. In this case, the strike price is $S_1=3$, since the holder of the claim receives a payout of $0$ if the value of the risky asset at time $t=1$ is $S_1=3$.

Therefore, the financial claim described above is a put option with a strike price of $3$.