Call option pricing
Download
1 / 15

Call Option Pricing - PowerPoint PPT Presentation


  • 149 Views
  • Uploaded on

Call Option Pricing. Using replicating portfolios. Call Options. Call Option, time T Payout Function. Call Option, Net Profit Function. Arbitrage: no riskless profits . Example: Possible stock price movements. Example: Possible call option payouts.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Call Option Pricing' - maili


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Call option pricing

Call Option Pricing

Using replicating portfolios







Example: Possible call option payouts

Clearly, if the stock price goes down at t = 1, the option will be worthless (no possible payout). So let’s start at the top-right node.



Calculating today’s value of the call option C to get the value as of today t = 0.0


Arbitrage pricing
Arbitrage Pricing to get the value as of today t = 0.


Call value payouts
Call Value Payouts to get the value as of today t = 0.

Notice that probabilities do not appear in this pricing solution. Why not?

The probabilities are implicit in the current stock price (relative to probabilities and outcomes of future stock prices).


*** Notice this portfolio costs: – (5/7)(50) + 22.5 = -13.21, the same as the option price.

***

***

***At t = 1, borrow 22.5 more (to total 45) and buy 2/7 more shares (to total 1 share).


How the model stops working
How the model stops working -13.21, the same as the option price.


Black scholes calculator online
Black-Scholes Calculator (online) -13.21, the same as the option price.

Free: http://www.tradingtoday.com/black-scholes


ad