6. Options Markets
Summary
Call Options and Put Options
European Options and American
Options
How the Options are Traded
How Margin Requirements are Set
Options Payoff Diagrams
1
Types of Options
A call is an option to buy
A put is an option to sell
A Eur
9. An Introduction to
Binomial Trees
Summary
Option Pricing Models
One-step binomial models for
European options
Risk-neutral valuation
Two-step binomial models
European vs. American options
Hedge ratio
Binomial Trees in Practices
1
Option Pricing Models
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Preliminaries
1. On Interest Rates
Topic 0
Material in chapters 1, 4
2
i. Types of Risk-free Rates
Treasury Rates
Treasury rates
LIBOR rates
Repo rates
Rates on instruments issued by a government in
its own currency
Risk-Free in the sense t