New PDF release: Advanced Option Pricing Models

By Jeffrey Owen Katz

ISBN-10: 0071406050

ISBN-13: 9780071406055

Katz's booklet on complicated innovations Pricing deals investors extra perception into barriers and error present in conventional pricing versions. For these folks that write mechanical thoughts buying and selling platforms, fairly blend types, Jeff's booklet is a needs to learn. when you are an ideas cost researcher trying to find intensive complicated pricingmodel discovery, research and arithmetic, this publication may not be for you. in spite of the fact that, when you are how one can increase your present versions hence converging the mistake among empirically derived ideas procedure fairness curves and people fairness curves derived from ideas types, you need to learn this booklet. As such a lot investors understand, effective access and go out issues out there usually ensue during times whilst pricing types holiday down, so the extra you could find out about ideas habit in this temporary interval, the higher your total buying and selling process can be.

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Extra info for Advanced Option Pricing Models

Example text

In other words, the focus here is primarily on equity (stock) options and index options. It should be noted that most stock options are American-style options, which may be exercised at any time prior to expiration. Index options may be either European style or American style. Years ago, options contracts were traded “over the counter” and were customized to the contract writer’s requirements. Today, while some options are still traded the old way, most have been standardized, are issued by the Option Clearing Corporation (OCC), and are traded on regulated exchanges as listed options.

For a short-term or day trader, the purchase of a put is a good way to speculate on an anticipated decline in a stock’s price, or to cash in on a crash. Figure 1–3 shows the impact of volatility on call option premiums. Again, interest and dividend rates have been set to zero and the strike price to $50. In this instance, the time remaining until expiration has been fixed at one month, and the three curves characterize differing levels of volatility. The attentive reader will note the similarity to Figure 1–1.

In Figure 1–1, it can be seen that time value reaches a maximum when the stock is around $50 and, consequently, the options are at-the-money. At-the-money 36 CHAPTER 1 options generally have the greatest amount of time premium. Time value decreases as options move further in- or out-of-themoney. This appears in Figure 1–1 as a narrowing of the distance between the curves as stock prices move away from $50, the strike price of the options. Intrinsic value is the vertical distance between the price curve for the expiring option and the x-axis, which crosses the y-axis at zero.

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Advanced Option Pricing Models by Jeffrey Owen Katz


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