Ch09 - Properties of Stock Options Chapter 9 1 Notation c :...

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Properties of Stock Options Chapter 9 1
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Notation   c : European call  option price   p  : European put  option price S 0 : Stock price  today   K  : Strike price T : Life of option    σ : Volatility of stock  price   C  : American Call  option price   P : American Put  option price   S T :Stock price at option  maturity   D  : Present value of  dividends during option’s  life   r   : Risk-free rate for  maturity  T   with cont  comp 2
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Effect of Variables on Option Pricing (Table 9.1, page 202) 3 c p C P Variable S 0 K T σ r D + + + ? ? + + + + + + + + + + +
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American vs European Options An American option is worth at least as much as the corresponding European option C c P p 4
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Calls: An Arbitrage Opportunity? Suppose that c = 3 S 0 = 20 T = 1 r = 10% K = 18 D = 0 Is there an arbitrage opportunity? 5
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Lower Bound for European Call Option Prices; No Dividends ( Equation 9.1, page 207) c max ( S 0 –Ke –rT , 0) 6
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Puts: An Arbitrage Opportunity?
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Ch09 - Properties of Stock Options Chapter 9 1 Notation c :...

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