Home
Flashcards
Preview
3.0.Background - Options
The flashcards below were created by user
Exam9
on
FreezingBlue Flashcards
.
Quiz
iOS
Android
More
Define Call & Put Option
Call option
: gives the option buyer the right to
buy
an asset for a given price at some date.
Put option
: gives the option buyer the right to
sell
an asset for a fiven price at some date.
American vs European option
American
option can be exercised any time, while
european
can only be exercised on the expiration date.
Factors that affect the price of an option
Current stock price
Exercise price or strike price
Time to expiration
Volatility
Risk-free rate
Dividends
Put-Call parity
C + Ke
^{-rT}
= P + S
Black-Scholes formula
C = N(d
_{1}
) - N(d
_{2}
)Ke
^{-rT}
d
_{1}
= [ln(S/K) + (r + ½σ²)T] / σ√T
d
_{2}
= [ln(S/K) + (r - ½σ²)T] / σ√T
d
_{2}
= d
_{1}
- σ√T
Special case when
K = Se
^{-rT}
, C ≈ 0.4S σ√T
Ito's Lemma
Geometric Brownian Motion
:
dS = μSdt + σSdz
dG = [(δG/δS)μS + (δG/δt)μS + ½(δ
^{²}
G/δS²)σ²S²]dt + (δG/δS)σSdz
Author:
Exam9
ID:
64851
Card Set:
3.0.Background - Options
Updated:
2011-02-09 01:38:50
Tags:
Goldfarb
Folders:
Description:
Goldfarb
Show Answers:
Home
Flashcards
Preview