FINA 4110 Slides 10 [Properties of Stock Options]

FINA 4110 Slides 10 [Properties of Stock Options] -...

Info iconThis preview shows pages 1–8. 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 z c : European call option price z p : European put option price z S 0 : Stock price today z K : Strike price z T : Life of option z σ : Volatility of stock price z C : American Call option price z P : American Put option price z S T :Stock price at option maturity z D : Present value of dividends during option’s life z r : Risk-free rate for maturity T with cont. comp. 2
Background image of page 2
Effect of Variables on Option Pricing (Table 10.1, page 228) cpCP 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 corresponding European option C c P p 4
Background image of page 4
Calls: An Arbitrage Opportunity? z Suppose that c = 3 S 0 = 20 T = 1 r = 10% K = 18 D = 0 z Is there an arbitrage opportunity? 5
Background image of page 5

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

View Full DocumentRight Arrow Icon
Lower Bound for European Call Option Prices; No Dividends ( Equation 10.4, page 233) c S 0 –Ke -rT 6
Background image of page 6
Puts: An Arbitrage Opportunity? z Suppose that p = 1 S 0 = 37 T = 0.5 r =5% K = 40 D = 0 z Is there an arbitrage opportunity?
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/03/2012 for the course FINA 4110 taught by Professor Liu during the Spring '11 term at CUHK.

Page1 / 20

FINA 4110 Slides 10 [Properties of Stock Options] -...

This preview shows document pages 1 - 8. Sign up to view the full document.

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