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TWO
——»¢
Patriarchy, the system
An It, Not a He, aThem,‘ or an Us
Allan G. Iohnson
“When you say patriarchy,” a man complained from
the rear of the audience, "I know what you really
mean—me!” A lot
Option Pricing
Risk Neutral
Probabilities
Two Step Binomial Tree
Q78) What is the price of a 3 month call with
a strike price of $50. The underlying assets
price is $43. The risk free rate is 10%, u
=1.4 and d=.6
1.
7.46
2.
7.56
3.
20%
20%
20%
5.29
5.
20%
Option Pricing
Risk Neutral
Probabilities
Two Step Binomial Tree
Q78) What is the price of a 3 month call with
a strike price of $50. The underlying assets
price is $43. The 3 month risk free rate is
2.47%, u =1.4 and d=.6
1.
7.46
2.
7.56
3.
20%
20%
20%
5
Continuous Compounding
Interest
Believe or not this
makes the problems
easier
Another Tangent
Continuous Compounding
Periodic compounding
(1 + Rear )
n
Rapr
= 1 +
m
mn
Where
Rapr is the annual percentage rate
Rear is the equivalent annual rate
N is the n
Option Pricing
Binomial Model
Option Pricing with a
replicating portfolio
Introduction
States and Probabilities
Suppose there are two states the up state
(u) and the down state (d).
A stock will take on the price of S0u in the
up state and S0d in the down
Options
Puts and Calls
What is an Option
Recall
Option:
is a contract that gives the holder the right, but
not the obligation, to buy (or sell) an asset at
some predetermined price within a specified
period of time.
The writer or seller of an option
The p
What is a financial derivative
The Basics
Q46) The definition of a financial derivative
is _
1.
2.
3.
4.
An financial instrument that derives
its value from another underlying
asset.
An financial contract that gives the
owner the option, but not the
oblig
Miller & Modigliani
1961
Dividend Payout
A bird in the hand is
worth two in the bush
Assumption
1.
No transaction costs
2.
There are no agency costs.
1.
3.
No Information asymmetry
1.
4.
Managers maximize shareholders wealth
Managers and Shareholder have
Anatomical Plan
Terminology
Chapter 1
Textbook reading: pages 6-11, 16-19
02_Student Version_Revised Spring 2011
What you should know by now
Body positions
Anatomical planes
Directional terms
Body regions
What to Expect Next Week
Online lecture quiz 1 due
Introduction to Human Anatomy
Lecture notes - Print notes before each class.
Remember to delete slides and alter as you wish before printing.
See Printing PowerPoint Lecture Notes on Blackboard (Lecture)
01_Student Version - Revised Spring 2012
Scope of H