Option Contracts, Participants, Strategies, and Pricing
About this Course
In this course, we'll address the basics of option pricing. We'll provide a short review of discounting and future value and also discuss the Law of No-arbitrage, along with examples that illustrate its utility in pricing. We will also define two basic option types, call and puts, and explain their payoffs. The six key inputs that determine option prices will be examined and the relationship of each input’s effect on the call price and put price will be evaluated. The survey of the types of participants in options markets will also be discussed. The trading strategies used by these participants will be presented, both with single options, as well as with combinations of options. Next, option pricing will be analyzed in detail. First, a binomial model is used to compute the price of an option in discrete time. The underlying assumption of no-arbitrage is addressed again as the option is priced going backward in time, from option expiration to the present. The hedge ratio at each node is calculated to emphasize the notion of replication. Then the Black Scholes formula will be derived, along with explanations of the assumptions underlying the model. The mathematics are carefully interpreted at each step, resulting in an intuitive description of the partial derivatives, or Greek sensitivities, within the Black Scholes partial differential equation.Created by: New York Institute of Finance
Level: Introductory
Related Online Courses
Le cours propose des détails sur le cadre MTDS conjoint du Fonds monétaire internationale et de la Banque mondiale (FMI-BM) ainsi qu’une formation exhaustive sur le MTSD AT, l’outil qui accom... more
Capire i concetti politici, imparare a definirli con precisione senza perdere la loro ricchezza, è il primo passo per diventare protagonisti del mondo politico. Attraverso l’utilizzo di una me... more
La Formation virtuelle pour une meilleure gestion des recettes fiscales (en anglais, Virtual Training to Advance Revenue Administration, ou VITARA) est le résultat d’une initiative conjointe en... more
This the final capstone course in the Instructional Design and Technology MicroMasters program where we delve into evaluation of course design and develop your final capstone project. Evaluation... more
Inclusive teaching is an issue that has received increased attention on college campuses around the country and around the world. Understanding how course climate impacts students and their... more