Lecture 32 - 11/17/2010 Agenda...

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11/17/2010 1 Financial Economics Lecture 32 Economics 3330 Cornell University November 17, 2010 Agenda LC: Covered Call, Pre expiration values Begin Chapter 21 TC: Pre expiration values, Binomial Options NC: Black Scholes Lectures 34 36 on Performance Evaluation and Hedge Funds drawn from Chapters 24 and 26 Final lecture will be a review PS 10 due 12/2 to be posted soon Pre Expiration Call Price Bounds Observation: Price C of call should always be less than that of stock itself Observation: Based on constructed portfolio that was (weakly) worse than option C > S 0 PV(X) PV(D) Need more structure to actually know C Pre Expiration Call Price (Illustrative) Less likely that the asset price will be below exercise price at expiration as current price increases Thus, C moving closer to S 0 PV(X) PV(D) on graph as S 0 increases How does slope change? Early Exercise of Call
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This note was uploaded on 04/06/2011 for the course CHEM 2070 taught by Professor Chirik,p during the Fall '05 term at Cornell University (Engineering School).

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Lecture 32 - 11/17/2010 Agenda...

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