Transcription of Chapter 11 Options - its.caltech.edu
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Chapter 11 Options - its.caltech.edu
Chapter 11 OptionsRoad MapPart AIntroduction to BValuation of assets, given discount CDetermination of risk-adjusted discount DIntroduction to derivatives. Forwards and futures. Options . Real Issues Introduction to Options Use of Options Properties of Option Prices Valuation Models of OptionsChapter 11 Options11-11 Introduction to DefinitionsOption types:Call: Gives owner the right to purchase an as-set (the underlying asset) for a given price(exercise price) on or before a given date(expiration date).Put: Gives owner the right to sell an asset for agiven price on or before the expiration styles:European: Gives owner the right to exercise theoption only on the expiration : Gives owner the right to exercise theoption on or before the expiration elements in defining an option: Underlying asset and its priceS Exercise price (strike price)K Expiration date (maturity date)T(today is 0) European or 2006c J.
Chapter 11 Options 11-9 3 Properties of Options For convenience, we refer to the underlying asset as stock. It could also be a bond, foreign currency or some other asset. Notation: S: Price of stock now S T: Price of stock at T B: Price of discount bond with face value $1 and maturity T (clearly, B ≤ 1) C: Price of a European call with strike ...
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