Chapter 22 - Lecture Presentation Software to accompany...

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Unformatted text preview: Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Eighth Edition by Frank K. Reilly & Keith C. Brown Chapter 22 Chapter 22 Option Contracts Questions to be answered: How are options traded on exchanges and in OTC markets? How are options for stock, stock indexes, foreign currency, and futures contracts quoted in the financial press? How can investors use option contracts to hedge an existing risk exposure? Chapter 22 Option Contracts What are the three steps in establishing the fundamental no arbitrage value of an option contract? What is the binomial (or two-state) option pricing model and in what ways is it an extension of the basic valuation approach? What is the Black-Scholes option pricing model and how does it extend the binomial valuation approach? Chapter 22 Option Contracts What is the relationship between the Black-Scholes and the put-call parity valuation models? How does the payment of a dividend by the underlying asset impact the value of an option? How can models for valuing stock options be adapted to other underlying assets, such as stock indexes, foreign currency, or futures contracts? Chapter 22 Option Contracts How do American- and European-style options differ from one another? What is implied volatility and what is its role in the contract valuation process? Chapter 22 Option Contracts How do investors use options with the underlying security or in combination with one another to...
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This note was uploaded on 08/29/2009 for the course BUS Invt taught by Professor Yost during the Spring '09 term at W. Florida.

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Chapter 22 - Lecture Presentation Software to accompany...

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