3. Option strategies
Liuren Wu
We consider one underlying risky security (it can be a stock or exchange rate), and we use S to denote
its price, with S0 = 100 being its current price and ST being its future price at time T . Ignore bid-ask spread
and tran
1. Forward and Futures
Liuren Wu
We consider only one underlying risky security (it can be a stock or exchange rate), and we use S to
denote its price, with S0 being its current price (known) and ST being its price at time T (unknown). Also,
ignore bid-as
4. Binomial tree
Liuren Wu
(A) 110
(D) 105
PP
P
P
(F) St = 100 PPP
(B) 100
P
(E) 95 PPP
P
(C) 90
Consider the above two-step binomial tree, with each step being three months, t = 0.25. The stock price
is shown on the tree. The continuously compounding in
2. Option denitions, payoffs, and boundaries
Liuren Wu
We consider one underlying risky security (it can be a stock or exchange rate), and we use S to denote
its price, with S0 = 100 being its current price and ST being its future price at time T . Ignore
Binomial Trees
Liuren Wu
Zicklin School of Business, Baruch College
Options Markets
Liuren Wu (Baruch )
Binomial Trees
Options Markets
1 / 22
A simple binomial model
Observation: The current stock price (St ) is $20.
Binomial model assumption: In 3 months
Midterm Exam on Options Markets
(FIN9891, EMSF Trimester 2, 2012)
Liuren Wu
1. You plan to make a market on a forward contract on a non-dividend paying stock. The stock
can be bought and sold easily without transaction cost at its current market price of
Options Trading Strategies
Liuren Wu
Zicklin School of Business, Baruch College
Options Markets
Liuren Wu (Baruch)
Options Trading Strategies
Options Markets
1 / 19
Objectives
A strategy is a set of options positions to achieve a particular risk/return
pr
Midterm Exam on Options Markets
(FIN9891, EMSF Trimester 2, 2012)
Liuren Wu
Please remove everything from your desk, except one page (two sides) of notes, a calculator
(without phone or internet connection), and some blank white paper.
You get partial cre