properties of option prices缩减PPT.ppt

1 Chapter 8　 Properties ofStock Option Prices 2 8.1 factors affecting options prices c : European call option price p : European put option price S0 : Stock price today K : Strike price T : Life of option : Volatility of stock price C : American Call option price P : American Put option price ST :Stock price at option maturity D : Present value of dividends during option’s life r : Risk-free rate for maturity T with cont comp Notation 3 Effect of Variables on Option Pricing c p C P + + – + + + + + + + – – – + 4 8.2 basic option price relationship under no arbitrage condition An American option is worth at least as much as the corresponding European option C  c P  p upper and lower bounds for option prices Upper bounds Call options: Put options: 5 8.2 basic option price relationship under no arbitrage condition upper and lower bounds for option prices Lower bond for European calls on no-dividend-paying stocks 8 Continued. Formal prove: Portfolio C: one European put option plus one share Portfolio D: an amount of cash equal to At time T: C is worth: D is worth: K Under no arbitrage condition, today: 9 Continued. Suppose p=$1. Is there an arbitrage opportunity? 10 Put-Call Parity for European options Portfolio A: one European call option plus an amount of cash equal to Portfolio C: one European put option plus one share Both are worth at expiration date. European options; under no arbitrage condition : portfolios A and C must have identical values today. 8.2 basic option price relationship under no arbitrage condition 11 Suppose:S0=$31, K=$30, r=10%per annum. The price of a three-month European call option is $3, and the price of a three-month European put option is $2.25. Is there an arbitrage opportunity? Example: 12 8.3 Early Exercise: Calls on a non-dividend-paying stock Usually there is some chance that an American option will be exercised early An exception is an American call on a non-dividend paying