Lectures 14 & 15 Options, Futures, and Derivatives
Stephen Kinsellawww.stephenkinsella.net
Definition(s)Age Old Futures
Today's derivatives marketsTime.Intrinsic.Values
The Black Scholes ModelSome Numerical Examples
Remember this:
The Philosopher’s story.
An option is a financial product which gives the holder the right but not the obligation to buy or sell the
underlying asset at a predetermined price.
Derivatives are financial instruments that derive their value from the prices of one or more other assets such as stocks, bonds, foreign currencies, or commodities.
Derivatives serve as tools for managing risks associated with these underlying assets. The most common types of
derivatives are options and futures.
A financial contract is a derivative security on a contingent claim if it's value at expiration time T is
determined exactly by the market price of the underlying cash asset at time T.
Valuing Options.
Calls and Puts
Intrinsic and Time Value
Mathematica
Derivation
Mathematica
Sensitivities
Mathematica
Next time: Behavioural Finance. Read Shiller, Kahneman, and Ritter, in coursepack.
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