Option Pricing （巴克莱银行，PPT）课件.ppt

OP102 Option Pricing Mike Pawley Aims By the end of this module you should : Understand the binomial option pricing model Be able to calculate an option price using the binomial method Understand the broad concepts behind the Black-Scholes model Be able to calculate an option price using the Black-Scholes method Pub Game ! Option Premium Definition ‘Wine’ Option The forward price is based on the spot price adjusted for cost of carry. The market is thus willing to sell wine forward at a price of ￡110 per case. Initial Price Assumption Let’s assume that the market for this special wine is a bit odd: we know with certainty that the price one year from today will be either ￡120 or ￡83. Your client would like to purchase a 1-year at-the-money call option (strike =￡110) on the wine. How much should you charge for the call, such that you can hedge it without taking any risk? Initial Price Assumption Short Call Risk Basic Hedge The only way to hedge this call is to buy wine today and pay the 10% financing cost—or buy wine forward at ￡110 (which is the same thing). If we buy a whole case of wine forward we would appear to be hedged if the price of wine rises. But where do we stand if the price falls? Basic Hedge Hedge The solution to this problem is based on taking a partial position in wine 1-year forward. What we need is a position that has equal gains whether the price moves up or down. If we can find this position, we know how much premium to collect. Algebra gives us a solution for how much wine to buy forward. Let Wine% be the face value of the wine we must buy forward. We will buy the wine and sell the call struck at ￡110. Hedge Calculation 1 Hedge Calculation 2 Call Value Hedge Works ! Option Pricing Logic Either way the market moves, our net position is worth ￡0. We are hedged. This is the fundamental logic of all option pricing models. The value of the option is based on creating a portfolio composed of some amount of the underlying commodity (or FX or int