## Vanilla

Subtype of Payoff TypeIn the call case the payoff equals the amount by which the referenced variable

**exceeds some fixed strike**

*x*

*K*The payoff is zero if

**falls below**

*x*

*K*In the put case, everything is reversed so that

**must fall below**

*x***for a payoff to occur.**

*K*The formal definition is as follows:

**is transformed into**

*x***where**

*max{ ε(x-K) , 0 }***and**

*ε***are constants defined in the contract specification.**

*K*Furthermore

**can take only the values**

*ε***or**

*1***and corresponds to a payoff attribute called Direction**

*-1***may take any value and is usually referred to as "strike".**

*K*