lecture7 (1)

lecture7 (1) - Lecture 7 Bounds on Options Prices Steven...

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Lecture 7: Bounds on Options Prices Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 11794–4400 http://www.cs.sunysb.edu/ skiena
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Option Price Quotes
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Reading the Quotes Bid and Ask are what the market maker is willing to buy and sell at now. The Last sales price is usually between them. Volume is the number of transactions in the option that day. Open interest counts the number of contracts that have been issued to date which have not yet been offset/closed out. Option prices decrease (increase) with respect to strike price for calls (puts).
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Factors Affecting Option Prices 1. The current stock price S 0 . 2. The option strike price K . 3. The time to expiration T . 4. The volatility of the stock price σ . 5. The risk-free interest rate r . 6. The value of dividends expected during the life of the option.
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Suppose each relevant factor increased in isolation. How does that impact the value of an American option? variable
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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lecture7 (1) - Lecture 7 Bounds on Options Prices Steven...

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