Lecture 14 - Options

Lecture 14 - Options - Financial Markets and Institutions...

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Unformatted text preview: Financial Markets and Institutions Options Slides prepared by Issam Hallak Definition Option contract: A contract that gives the right ( option ) to buy or sell the underlying financial instrument at a specified price within a specific period of time. Types of options • Call/put option Conveys to the buyer the right , not the obligation, to buy/sell the underlying asset. • European/American option Right to exercise the option on /until maturity date. Remember: it has nothing to do with being European or American! These are combined: American put , European call , European put , American call . Types of options • The underlying asset may be the spot foreign exchange ( currency option on spot ) or a currency futures contract ( currency option on futures ), a stock, an interest rate futures, etc. Types of options Examples An American call option on spot € : The right to buy € 1 million for $1.30 per € from today until expiration on March 15, 2005. This “call on € ” is also a “put on US$”. A European put option on Swiss franc futures : The right to sell SFr 10 million March 2005 futures for $0.65 per SFr on (and only on) Mar 15, 2005....
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This note was uploaded on 10/12/2011 for the course BIEMF 30006 taught by Professor Ippolito during the Fall '10 term at Università Bocconi.

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Lecture 14 - Options - Financial Markets and Institutions...

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