chap15_option2 - Chapter 15 Options Valuation Option Values...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 15 Options Valuation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
.       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
Background image of page 2
.       Time Value of Options: Call Option value X Stock Price Value of Call Intrinsic Value Time value
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
.       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
Background image of page 4
.       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.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
.       Black-Scholes Option Valuation
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

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.

Page1 / 14

chap15_option2 - Chapter 15 Options Valuation Option Values...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online