7/29/2019 Option Valuation I

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Ge0

7/29/2019 Option Valuation I

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H Jhkk Fptefd

H Nurfpnhd jhkk fptefd aevns t`n buynrfg t`n fptefd h rea`t tf purj`hsn t`n

udonrkyeda hssnt+ ht t`n nxnrjesnprejnfd t`n nxperhtefd ohtn$

Et es fptechk tf nxnrjesn t`n jhkk fptefd eg t`n

stfji prejn nxjnnos t`n strein prejn=

J_ 3 Chx {Z_ P+

7/29/2019 Option Valuation I

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H \ut Fptefd

H Nurfpnhd put fptefd aevns t`n buynrfg t`n fptefd h rea`t tf snkk t`n

udonrkyeda hssnt+ ht t`n nxnrjesnprejnfd t`n nxperhtefd ohtn$

Et es fptechk tf nxnrjesn t`n put fptefd eg t`n

stfji prejn es bnkfw t`n strein prejn=

\_ 3 Chx {P # Z_ +

7/29/2019 Option Valuation I

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_`n \ut Jhkk \hrety

Eg twf pfrtgfkefs `hvn t`n shcn phyfggs ednvnry pfssebkn sthtn hdo tecn ed t`n guturn+t`ner prejns cust bn nquhk=

(8 %_P

J Z \rg

7/29/2019 Option Valuation I

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Hrbetrhan t`n Khw fg Fdn \rejn

Eg twf hssnts `hvn t`n shcn phyfggs ed nvnrypfssebkn sthtn ed t`n guturn hdo t`ner prejnshrn dft nquhk+ t`nrn es hd fppfrtudety tf

chin hd hrbetrhan prfget$

Qn shy t`ht t`nrn nxests hd hrbetrhanfppfrtudety eg wn eondtegy t`ht=

_`nrn es df edetehk edvnstcndt

_`nrn es df resi fg kfss

_`nrn es h pfsetevn prfbhbekety fg prfget

7/29/2019 Option Valuation I

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Hrbetrhan h _nj`dejhk Ongedetefd

Knt JGtm bn t`n jhs` gkfw fg hd edvnstcndtstrhtnay ht tecn t hdo sthtn m$ Eg t`n gfkkfwedajfdoetefds hrn cnt t`es strhtnay andnrhtns

hd hrbetrhan prfget$(e% hkk t`n pfssebkn jhs` gkfws ed nvnrypfssebkn sthtn hdo tecn hrn pfsetevn fr znrf #

JGtm < gfr nvnry t hdo m$(ee% ht knhst fdn jhs` gkfw es strejtky pfsetevn #t`nrn nxests h pher ( t + m % gfr w`ej` JGtm 4

7/29/2019 Option Valuation I

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Hrbetrhan hd NxhcpknEs t`nrn hd hrbetrhan fppfrtudety eg t`n

gfkkfweda hrn t`n chrint prejns fg t`n hssnts=

_`n prejn fg fdn s`hrn fg stfji es /:59

_`n prejn fg h jhkk fptefd fd t`ht stfji+w`ej` nxperns ed fdn ynhr hdo `hs hdnxnrjesn prejn fg /?9

_`n prejn fg h put fptefd fd t`ht stfji+w`ej` nxperns ed fdn ynhr hdo `hs hdnxnrjesn prejn fg /?

7/29/2019 Option Valuation I

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Hrbetrhan hd Nxhcpkn

Ed t`es jhsn wn cust j`nji w`nt`nr t`n putjhkk phrety `fkos$ Zedjn wn jhd snn t`ht t`esphrety rnkhtefd es vefkhtno+ wn wekk s`fw t`ht

t`nrn es hd hrbetrhan fppfrtudety$

8

/? /??$507

(8 % (8 $>

_

PJ

rg

Z \

7/29/2019 Option Valuation I

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_`n Jfdstrujtefd fghd Hrbetrhan _rhdshjtefd

Jfdstrujteda t`n hrbetrhan strhtnay=

8$ Cfvn hkk t`n tnrcs tf fdn seon fg t`n nquhtefdsf t`ner suc wekk bn pfsetevn9

2$ Gfr nhj` hssnt+ usn t`n sead hs hd edoejhtfr fgt`n hpprfprehtn edvnstcndt ed t`n hssnt$ Eg t`nsead es dnahtevn t`nd t`n jhs` gkfw ht tecn t3< es

dnahtevn (w`ej` cnhds t`ht yfu buy t`n stfji+bfdo fr fptefd%$ Eg t`n sead es pfsetevn rnvnrsnt`n pfsetefd$

7/29/2019 Option Valuation I

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Hrbetrhan hd Nxhcpkn

Ed t`es jhsn wn cfvn hkk tnrcs tf t`n K@Z=

/?>$> /??$507 /8? ) B/8$5% hdo t`n jhkk fptefd prejn es J3/:$27>7$

7/29/2019 Option Valuation I

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H Oeggnrndt Rnpkejhtefd

_`n prejn fg /8 ed t`nup sthtn=

_`n prejn fg /8 ed t`nofwd sthtn=

qu

/8

/ ) qo/?0$> 3 />+

7/29/2019 Option Valuation I

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Rnpkejhteda \frtgfkefs ^seda t`nZthtn \rejns

Qn jhd rnpkejhtn t`n t38 phyfggs fg t`n stfji hdot`n bfdo useda t`n sthtn prejns=

qu/>> ) qo/?0$> 3 />

7/29/2019 Option Valuation I

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_`n Ztfji \rejn

Z3 />>

Zo3/?0$>

Zuu3/7

Zuo3Zou3/>:$:>

Zoo3/?1$

7/29/2019 Option Valuation I

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_`n Bfdo \rejn

r3 7. (gfr nhj` pnrefo%

/8

/8$

7/29/2019 Option Valuation I

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_`n Jhkk Fptefd \rejn

P3 />< hdo _3 2 pnrefos

J

Ju

Jo

Juu3Chx{7#>:$:>#>

7/29/2019 Option Valuation I

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Zthtn \rejns ed t`n _wf \nrefo _rnn

Qn jhd rnpkejhtn t`n t38 phyfggs fg t`n stfji hdo t`n bfdouseda t`n sthtn prejns=

qu/>> ) qo/?0$> 3 />< hdonxperhtefd ed twf pnrefos6

Q`ht es t`n prejn fg hd Hcnrejhd put fptefd fdt`ht stfji+ wet` hd nxnrjesn prejn fg />< hdonxperhtefd ed twf pnrefos6

7/29/2019 Option Valuation I

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_wf \nrefo Nxhcpkn

Nurfpnhd put fptefd # usn t`n trnn fr t`nput#jhkk phrety

Q`ht es t`n prejn fg hd Hcnrejhd jhkkfptefd # eg t`nrn hrn df oeveondos

Hcnrejhd put fptefd usn t`n trnn

7/29/2019 Option Valuation I

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_`n Nurfpnhd \ut Fptefd \rejn

qu3 :8 hdo qo3

\u 3 :8-< )

7/29/2019 Option Valuation I

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_`n Hcnrejhd \ut Fptefd \rejn

qu3 :8 hdo qo3

7/29/2019 Option Valuation I

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Hcnrejhd \ut Fptefd

Dftn t`ht ht tecn t38 t`n fptefd buynr wekkonjeon w`nt`nr tf nxnrjesn t`n fptefd frinnp et tekk nxperhtefd$

Eg t`n phyfgg grfc eccnoehtn nxnrjesn es`ea`nr t`hd t`n fptefd vhkun t`n fptechkstrhtnay es tf nxnrjesn=

Eg Chx{ P#Zu+< } 4 \u(Nurfpnhd% 34 Nxnrjesn

7/29/2019 Option Valuation I

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_`n Hcnrejhd \ut Fptefd \rejn

qu3 :8 hdo qo3

\u 3 Chx{ :8-< ) } 3 / } 3 > 3 /8$>

\Hc 3 Chx{ :8-< ) < } 3 /? 4 /

7/29/2019 Option Valuation I

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Ontnrcedhdts fg t`n Whkunsfg Jhkk hdo \ut Fptefds

Whrehbkn J Jhkk Whkun \ \ut Whkun

Zstfji prejn Edjrnhsn Onjrnhsn

Pnxnrjesn prejn Onjrnhsn Edjrnhsnstfji prejn vfkhtekety Edjrnhsn Edjrnhsn

_tecn tf nxperhtefd Edjrnhsn Edjrnhsn

rresi#grnn edtnrnst rhtn Edjrnhsn Onjrnhsn

Oevoeveondo phyfuts Onjrnhsn Edjrnhsn

7/29/2019 Option Valuation I

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\rhjtejn \rfbkncs

BIC J`$ 28=

Ndo fg j`hptnr # 8+ 2

Nxhcpkn 28$8 hdo jfdjnpt j`nji X *?(phans 1>>#7%

\rhjtejn snt= 81#2?+ 2>#:>