Lecture_18

Lecture_18 - Professor Ruslan Goyenko 1 Derivatives...

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Professor Ruslan Goyenko 1 Options and Derivatives
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Derivatives derivative  is a security with a payoff that depends on the  price of another security The other security is called the  underlying  (security) Examples: options, futures Derivatives are used for  Risk management, hedging Executive compensation Portfolio insurance Speculation 2
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Options Characteristics Option types call  option:  right  to  buy  underlying at put  option:   right  to  sell  underlying at Exercise price or strike price at or before Expiration (European vs. American option) Price or premium  In-the-money, out-of-the-money, at-the-money Net profit 3
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At expiration, if the stock price is  ST , a  call  option  with strike price  is worth: At expiration, if the stock price is  ST , a  put  option  with strike price 
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This note was uploaded on 02/28/2012 for the course FINE 441 taught by Professor Ruslangoyenko during the Spring '08 term at McGill.

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Lecture_18 - Professor Ruslan Goyenko 1 Derivatives...

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