{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

topic05_pres - EC372 Bond and Derivatives Markets Options...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
EC372 Bond and Derivatives Markets Options Markets I: fundamentals R. E. Bailey Department of Economics University of Essex University week 20 EC372 Bond and Derivatives Markets Options Markets I Topic #5
Image of page 1

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

View Full Document Right Arrow Icon
Outline 1 Call options and put options 2 Payoffs on options 3 Option-like assets 4 Upper and lower bounds for option prices Lower bounds for European option premiums 5 The put-call parity relationship Reading: Economics of Financial Markets , chapter 18 EC372 Bond and Derivatives Markets Options Markets I Topic #5
Image of page 2
Outline Call options and put options Call options and put options I Options provide a right but not an obligation to take an action I Call option: the right but not the obligation to buy, on or before the expiry date, an underlying asset for the exercise price I Put option: the right but not the obligation to sell, on or before the expiry date, an underlying asset for the exercise price I Holders (buyers) and Writers (issuers) I ‘Holder’ owns the option: has ‘long’ position (an asset) I ‘Writer’ has issued the option: has a ‘short’ position (a liability) I Two styles: I American style: exercise at any time prior to expiry date I European style: exercise at expiry date only I Options can die, unexercised – options are exercised only if it is profitable to do so EC372 Bond and Derivatives Markets Options Markets I Topic #5
Image of page 3

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

View Full Document Right Arrow Icon
Outline Call options and put options Call options and put options I Options provide a right but not an obligation to take an action I Call option: the right but not the obligation to buy , on or before the expiry date, an underlying asset for the exercise price I Put option: the right but not the obligation to sell, on or before the expiry date, an underlying asset for the exercise price I Holders (buyers) and Writers (issuers) I ‘Holder’ owns the option: has ‘long’ position (an asset) I ‘Writer’ has issued the option: has a ‘short’ position (a liability) I Two styles: I American style: exercise at any time prior to expiry date I European style: exercise at expiry date only I Options can die, unexercised – options are exercised only if it is profitable to do so EC372 Bond and Derivatives Markets Options Markets I Topic #5
Image of page 4
Outline Call options and put options Call options and put options I Options provide a right but not an obligation to take an action I Call option: the right but not the obligation to buy, on or before the expiry date, an underlying asset for the exercise price I Put option: the right but not the obligation to sell , on or before the expiry date, an underlying asset for the exercise price I Holders (buyers) and Writers (issuers) I ‘Holder’ owns the option: has ‘long’ position (an asset) I ‘Writer’ has issued the option: has a ‘short’ position (a liability) I Two styles: I American style: exercise at any time prior to expiry date I European style: exercise at expiry date only I Options can die, unexercised – options are exercised only if it is profitable to do so EC372 Bond and Derivatives Markets Options Markets I Topic #5
Image of page 5

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

View Full Document Right Arrow Icon
Outline
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern