21a - 8/4/2011 Chapter 21 (Part 1) 21 (Part 1) Option...

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8/4/2011 1 Chapter 21 (Part 1 Chapter 21 (Part 1) Option Valuation Today: Chapter 21 (Part 1) – Restrictions on Option Values, Binomial Option Pricing Monday: Chapter 21 (Part 2) – More Binomial, Black-Scholes Restrictions on Option Values 0 T | | 00 S,C TT
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8/4/2011 2 Restrictions on Option Values 00 CS P V X S X   0 “Because early exercise is prohibited, the maximum value of the European put is PV(X)." Binomial Option Pricing 0 T | | S,C TT 100 120 State 1 Stock Process 90 State 2
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8/4/2011 3 Binomial Option Pricing 0 T | | 0 100 S 90 120 TT So r S C? 100 120 State 1 Stock Process 0 T 90 State 2 299 249 224 207 187 224 168 173 224 187 168 156 140 168 126 144 224 187 168 156 140 168 126 130 168 140 126 117 105 126 94 120 224 187 168 156 140 168 126 130 168 Histogram (2 Intervals) 0 0.5 1 1.5 2 2.5 0 4 8 1 20 60 200 2 Mo re Price Frequency Histogram (1 Interval) 0 0.2 0.4 0.6 0.8 1 1.2 160 24 28 Price 140 126 117 105 126 94 108 168 140 126 117 105 126 94 97 126 105 94 87 79 94 71 100 224 156 187 168 140 168 130 126 168 117 140 126 105 126 108 94 168 117 140 126 Histogram (3 Intervals) 0 0.5 1 1.5 2 2.5 3 3.5 Price Histogram (4 Intervals) 0 1 2 3 4 5 6 7 40 80 00 240 Price 105 126 97 94 126 87 105 94 79 94 90 71 168 117 140 126 105 126 97 94 126 87 105 94 79 94 81 71 126 87 105 94 79 94 73 71 94 66 79 71 59 71 53 Histogram (5 Intervals) 0 2 4 6 8 10 12 Price Histogram (6 Intervals) 0 5 10 15 20 25 More Price
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8/4/2011 4 Binomial Option Pricing 100 120 State 1
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21a - 8/4/2011 Chapter 21 (Part 1) 21 (Part 1) Option...

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