chap15_option2

# chap15_option2 - Chapter 15 Options Valuation Option Values...

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Chapter 15 Options Valuation

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.       Option Values Intrinsic value - profit that could be made if the option was immediately exercised Call: stock price - exercise price Put: exercise price - stock price Time value - the difference between the option price and the intrinsic value
.       Time Value of Options: Call Option value X Stock Price Value of Call Intrinsic Value Time value

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.       Factors Influencing Option Values: Calls Factor Effect on value Stock price increases Exercise price decreases Volatility of stock price increases Time to expiration increases Interest rate increases Dividend Rate decreases
.       Black-Scholes Option Valuation C o = S o e - δ T N(d 1 ) - Xe - rT N(d 2 ) d 1 = [ln(S o /X) + (r – δ + σ 2 /2)T] / ( σ T 1/2 ) d 2 = d 1 - ( σ T 1/2 ) where C o = Current call option value. S o = Current stock price N(d) = probability that a random draw from a normal dist. will be less than d.

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.       Black-Scholes Option Valuation
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## This note was uploaded on 05/10/2008 for the course FIN 367 taught by Professor Han during the Spring '08 term at University of Texas at Austin.

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chap15_option2 - Chapter 15 Options Valuation Option Values...

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