Chapter Nine. Introduction. The largely unseen links that OTC derivatives created among global financial institutions made the entire system vulnerable to the weakest of those institutions.
F(t)= S(t)* (1+r)^(T-t), where future/forward, F(t), will be found by compounding the present value S(t) at time t to maturity T by the rate of risk-free return r.
Option price = Intrinsic value + time value of the option
Call Option Intrinsic Value = Underlying Stock's Current Price – Call Strike Price
Put Option Intrinsic Value = Put Strike Price – Underlying Stock's Current Price
Time Value = Option Price – Intrinsic Value