Options Study Guide

In: Other Topics

Submitted By pln72
Words 483
Pages 2
Ch 9
Profit profile
Pay off profile
Definitions know concepts
Margin question- how your margin account behaves given certain prices (options)

Ch. 10
Variables of option pricing slide 3 –input paramaters affecting stokc options
Boundary counditions (eg. Lower bound for European calls)
Put call parity –replicate by moving everything else in the other side sell most expensive buy least expensive
Slide 5
Bull spread/bear spread using calls and puts, e.g. max profit in bull/bear spread
Box spread- payoff difference between strike prices = price today pv of difference of strike price
Calendar spread(not specific question)
Strip-strap whats strategy in place, profit expectation
Ch. 12
Use contrstuct binomial trees
Derivative with payoff = st2 – 750 <-pays this amount in maturity
T=0.5 years
Rf= 5% continuously compounded
So=30
Volatility=20% delta(t)=.25 /36.64
30 -<33.16 27.15 \24.56

U=e^sigmasqrt(deltaT)=e.2sqrt(.25)=1.10517 d=e^-sigmasqrt(deltaT)=1/u=0.90484 Upper bound
30*1.10517=33.16
33.16*1.10517=36.64
Lower bound
30*.90484=27.15
27.15*.90484=24.56

p=(e^rdelta*t)-d/u-d=.5378

1-p=.4622
Payoff
St^2-750= 36.64^2-750=592.5
30^2-750= 150
24.56^2-750=-146.81
Calculate value of derivative thru nodes
B: ([.5378)(592.5)+.4622(150)) e^-.05(.25)
C=.5378(150)+.4622(-146.81)e^-.05(.25)

A=(.5378(B) + .4622(B) )e^-.05(.25)
Payoff 33 = put
36.64 strike price payoff =0
30 strike price payoff = 3
24.56 strike price payoff=8.94
-------------------------------------------------

Black scholes formula ch13. How we can use options to use portfolio insurance e.g. put options
Couple formulas 1) determines number of contracts you have to pay, a function of beta
Ch . 15 determining strike price
Don’t worry about implied divided yields
Ch. 16
futures…...

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