Monday, October 30, 2017

2. Basic Option Valuation

Basic Option Valuation

Introduction

This topic identifies and shows why certain factors affect an options price. It examines option boundary conditions - rules that characterize rational option prices. Finally, the topic discusses how put and call prices are related as well as several other important principles. An overriding point throughout this topic and indeed the entire course is that arbitrage opportunities are quickly eliminated by investors.

Learning Objectives

  1. Standard option notation
  2. Boundaries on option prices
  3. Factors determining option prices
  4. Put-Call Parity.
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