Insurance, Collars, and Other Strategies
Basic Insurance Strategies
Using options to create synthetic
forwards
Spreads and collars
Speculating on volatility
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Basic Insurance Strategies
Options can be
long put option
Used to insure long positions

Introduction to derivatives
What Is a Derivative?
An Overview of Financial Markets
The Role of Financial Markets
Ways to think about derivatives
Buying and short-selling
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What Is a Derivative?
Definition
An agreement between two parties which has a

An Introduction to Forwards and Options
Forward contracts
Call options
Put options
Summary of forward and option
positions
Options are insurance
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Introduction
Basic derivatives contracts
Forward contracts
Call options
Put options
Types of positi

The Black- Scholes Formula
Introduction to the Black-Scholes
formula
Applying the formula to other assets
Option greeks
Delta-hedging
Volatility
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Binomial pricing
Vary the number of binomial steps (think about the
multiperiod example), fix the expir

Question 1
a) A short sale of JKI stock entails borrowing shares of JKI, then selling them and receiving
cash, and we learned that we sell assets at the bid price. Therefore, initially, we will receive
the proceeds from the sale of the asset at the bid (i