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21a - Chapter 21(Part 1 21(Part 1 Option Valuation Today...

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8/4/2011 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 Monday: Chapter 21 (Part 2) More Binomial, Black Scholes Restrictions on Option Values 0 T | | 0 0 S ,C T T S ,C
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8/4/2011 2 Restrictions on Option Values 0 0 C S PV X S X 0 C S “Because early exercise is prohibited, the maximum value of the European put is PV(X)." Binomial Option Pricing 0 T | | 0 0 S ,C T T S ,C 100 120 State 1 Stock Process 90 State 2
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