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The payoff is either some fixed amount of some asset or nothing at all.

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Forex Commodities Futures

Stocks
Indexes

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A trader believes that McDonalds stock (NYSE:MCD) will close above the current (spot) price of 74.93 by the end of the hour. The trader can invest $100 in McDonalds binary call option on that outcome. If his prediction is correct his pay out is $170 (70% profit). If he is incorrect and the stock closes below the strike price he loses $100.

Have long been available Overthe-counter. Securities and Exchange Commission approved listing cash-or-nothing binary options in 2008. American Stock Exchange and Chicago Board Options Exchange offer Binary Option. Approximately 40 websites offer Binary options.

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Temperature as a Commodity

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In
theory there will need for heaters below 65 Fahrenheit, and air conditioner above 65F. are termed as Heating

Baseline temperature of 65 F. Days on which heaters are used

Degree Day (HDD).

Days

on which air conditioner are used are termed as Cooling Degree Day (CDD).

Weather

derivatives cover low-risk, high-probability events Weather insurance cover high-risk, low-probability events

July 1996 Aquila Energy structured a dualcommodity hedge for Consolidated Edison Co.

Began trading over-the-counter in 1997. In 1999 the Chicago Mercantile Exchange introduced
the first exchange-traded weather futures contracts and corresponding options.

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Estimated size of market is $12 Billion (only USA). Temperature based weather derivatives are available
for 8 cities in the USA, 9 in Europe, 6 in Canada and 2 in Japan.

Frost days based derivatives in the Netherlands Monthly/seasonal snowfall based derivatives for Boston
and New York.

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Thank You