20 - 8/1/2011 Chapter 20 (Part 1) 20 (Part 1) Options...

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8/1/2011 1 Chapter 20 (Part 1 Chapter 20 (Part 1) Options Markets: Introduction Wednesday: Chapter 20 (Part 2) – Option Strategies / Examples Thursday: Work on Chapter 20 problems Friday: Chapter 21 (Part 1) – Option Valuation (Binomial & Black-Sholes) Options, Forward Contracts, Futures Contracts, Swaps Derivatives / Contingent Claims / Complex Securities Value is derived (depends) on the value of an underlying variable. Underlying: stock, bond, commodity, variance, weather …
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8/1/2011 2 Aristotle (Politics, Book I, Chapter 11) “But he, deducing from his knowledge of stars that there would be a good crop of olives, while it was still winter raised a little capital and used it to pay deposits on Some Definitions all the oil-presses in Miletus and Chios, thus securing an option on their hire. This cost him only a small sum as there were no other bidders. Then the time of the harvest came and as there was a sudden and simultaneous demand for oil-presses, he hired them out at any price he liked to ask. He made a lot of money …” A call option gives its holder the right to purchase an asset (stock) for a specified price (exercise price X) on or before some specified expiration date (T) price (exercise price, X) on or before some specified expiration date (T).
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20 - 8/1/2011 Chapter 20 (Part 1) 20 (Part 1) Options...

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