03rec5

03rec5 - 15.407 Recitation October 16, 2003 MIT Sloan...

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Unformatted text preview: 15.407 Recitation October 16, 2003 MIT Sloan School of Management Things to cover today: Basics of Options: 1. Introducing Options 2. AOB Definitions: Options : The owner of an option has the right to buy (or sell) a specified asset on (or before) a given date, at a given price. The right to buy is a call option , the right to sell is a put option . The specified price is the exercise price , and the last date you can exercise the option is the expiration date Option is a class of derivatives. Derivatives are things of which payoffs are directly related to the prices of (underlying) asset(s). As we will see next week, the no-arbitrage argument is very powerful for this class of assets. Options are extensively traded, from stock to bond, commodity, credit, even on other deriva- tives. Financial Engineering is a field that study derivatives. Payoff of an option: Suppose you bought a call option on IBM with strike price of $90, expiring in 1 month. Cur- rently IBM trades at $94.33. How much willrently IBM trades at $94....
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This note was uploaded on 01/19/2011 for the course 15 15.407 taught by Professor Wang during the Fall '03 term at MIT.

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03rec5 - 15.407 Recitation October 16, 2003 MIT Sloan...

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