FM11_Ch_08_Show

FM11_Ch_08_Show - 8-1 CHAPTER 8 Financial Options and Their...

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8 - 1 Financial options Black-Scholes Option Pricing Model CHAPTER 8 Financial Options and Their Valuation
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8 - 2 An option is a contract which gives its holder the right, but not the obligation, to buy (or sell) an asset at some predetermined price within a specified period of time. What is a financial option?
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8 - 3 It does not obligate its owner to take any action. It merely gives the owner the right to buy or sell an asset. What is the single most important characteristic of an option?
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8 - 4 Call option : An option to buy a specified number of shares of a security within some future period. Put option : An option to sell a specified number of shares of a security within some future period. Exercise (or strike) price : The price stated in the option contract at which the security can be bought or sold. Option Terminology
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8 - 5 Option price : The market price of the option contract. Expiration date : The date the option matures. Exercise value : The value of a call option if it were exercised today = Current stock price - Strike price. Note: The exercise value is zero if the stock price is less than the strike price.
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8 - 6 Covered option : A call option written against stock held in an investor’s portfolio. Naked (uncovered) option
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This note was uploaded on 04/12/2011 for the course ECON 101 taught by Professor Buddin during the Spring '08 term at UCLA.

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FM11_Ch_08_Show - 8-1 CHAPTER 8 Financial Options and Their...

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