Payoff Type refers to List of payoff types.
Each payoff type is designed to apply to one or more cash flows being paid in the context of a particular transaction.
Cash flows generally depend on the value realized by one or more well defined random variables.
Examples of such random variables are the price of a particular stock or the 10-year USD swap rate realized at some specific time, which should not be later than the time when the respective cash flow is paid.
As a demonstration consider the single cash flow that occurs at the expiry of a european .
In that case the cash flow depends on a single variable, which is the price of the underlying stock.
Knowledge of the value realized by this variable on the expiry time implies knowledge of the cash flow amount, provided the rules defining an option contract are known.
Generally speaking, each payoff type is the set of rules that define how the referenced random variables should be transformed into a cash flow amount according to the contract's specifications.
Note that in certain cases the actually paid amount might involve further transformations, which amounts to a series of payoffs, each applying on the result of the previous one.
Available Payoff Type types: