金融学概论讲义(北大光华管理学院)lecture07详解.doc

PAGE 1 Principles of Finance Lecture 07 Option Pricing Models Options: Definition ? An American-style call option gives the owner the right (but not obligation) to buy a specified asset at a specified price at any point in time prior to a specified date ? An American-style put option gives the owner the right (but not obligation) to sell a specified asset at a specified price at any point in time prior to a specified date ? For the European-style options, the owner can only exercise on the expiration date Options around us Government price support: Governments sometimes provide assistance to farmers by offering to purchase agricultural products at a specified support price. If the market price is lower than the support, then a farmer will exercise her right to ‘put’ her crop to the government at the higher price. Insurance: Insurance policy often gives you the right, but not the obligation to do something, it is therefore option-like. Options around us Limited liability: The owners of a limited liability corporation have the right, but not the obligation, to ‘put’ the company to the corporation’s creditors and bondholders. Limited liability is, in effect, a put option. Trading on Commission: You are a trader with a contract giving you a commission of 20% of each month’s trading profits. If you make a loss, then you walk away, but if you make a profit, you stay. (You may be tempted to increase your volatility to boost the value of your option). Specifications of Options Contracts ? European or American ? Call or Put (Option Class) ? Underlying Asset ? Strike Price ? Maturity (Expiration) Date Some Terminology ? Long position: The party who buys the options is said to have a long position ? Short position: The party who writes (i.e. sells) the option is said to have a short position Some Terminology ? In the Money: exercise of the option would be profitable. Call: market priceexercise price Put: exercise pricemarket price ? Out of the Money: exercise of the o