FIN4520-Chapter10

FIN4520-Chapter10 - corresponding European option C c P p 4...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Properties of Stock Options Chapter 10 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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
Background image of page 2
Effect of Variables on Option Pricing c p C P Variable S 0 K T σ r D + + + ? ? + + + + + + + + + + + 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
American vs European Options An American option is worth at least as much as the
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: corresponding European option C c P p 4 Upper and Lower Bounds for Options with Dividends S c max(S - Ke-rT - D, 0) Ke-rT p max(Ke-rT - S + D, 0) S C max(S - Ke-rT- D, S - K, 0) K P max(Ke-rT- S + D , K- S, 0) 5 Calls: An Arbitrage Opportunity? Suppose that c = 3 S = 20 T = 1 r = 10% K = 18 D = 0 Is there an arbitrage opportunity? Upper bound OK (20 > 3). 3 ? 20 18e-.10(1) = 3.71 6...
View Full Document

Page1 / 6

FIN4520-Chapter10 - corresponding European option C c P p 4...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online