金融工程导论课件CHAPTER5章节.PPTVIP

The payoff profiles of call and put The Basic No-Arbitrage The Basic No-Arbitrage (Cont.) * CHAPTER FIVE: Options and Dynamic No-Arbitrage A Brief Introduction of Options An option is the right of choice exercised in future. The holder (buyer, or longer) of the option has a right but not an obligation to buy or sell a special amount of the asset with a special quality at a pre-determined price. Call and put Exercise price Expiration date American options (C and P) vs. European options ( c and p) Call Put Long Short + + _ _ X X ST ST 0 0 Long Short + + _ _ X X ST ST 0 0 In-the-money, out-of-the-money, at-the-money, intrinsic value and time value — A Brief Introduction of Options (Cont.) 1) , 2) 3) , 4) If , then , 5) The underlying is a non-dividend-paying stock Suppose , then Arbitrage Immediate Cash Flow Position Cash Flow on the expired date Short a stock Long an European call Long riskless security Net cash flows Arbitrage Opportunity ! The Basic No-Arbitrage (Cont.) Proposition If the period to expiration is very long, the value of an European call is almost equal to its underlying. Proposition An American call on a non-dividend-paying stock should never be exercised prior to the expiration date. The relationship between American options and European options ? and Conclusion: The Parity of Call and Put The underlying is a non-dividend-paying stock S can be replicated by c, p and riskless security Suppose Position Cash flow at Cash flow at time T time t Buy a share Short a call Long a put Short treasury Net cash flow Arbitrage! Relationship between exercise