Binary options Nonstandard American Lookback options options Shout options Forward start options Asian options Compound options Options to exchange Chooser options one asset for another Barrier options Options involving

Standard approach to Estimating Volatility Define on as the volatility per day between day n-1 and day n, as estimated at end of day Define S: as the value of market variable at end of day i

Put-call parity p +spe-ql=c+Xer holds regardless of the assumptions made about the stock price distribution It follows that

European Options on Stocks 13.2 Providing a dividend yield We get the same probability distribution for the stock price at time T in each of the following cases 1. The stock starts at price so and provides a dividend yield =q 2. The stock starts at price Soe q l and provides no income

Categorization of Stochastic Processes Discrete time; discrete variable Discrete time; continuous variable Continuous time; discrete variable Continuous time; continuous variable Options, Futures, and Other Derivatives,5 th edition2002 by John.hull

Three Alternative strategies Take a position in the option and the underlying Take a position in 2 or more options of the same type(a spread Combination: Take a position in a mixture of calls puts(A combination)

Types of options A call is an option to buy A put is an option to sell A European option can be exercised only at the end of its life An American option can be exercised at any time

Types of Rates Treasury rates LIBOR rates Repo rates Options, Futures, and Other Derivatives, 5th edition@ 2002 by John C. Hull

Consumption vs Investment Assets Investment assets are assets held by significant numbers of people purely for investment purposes (Examples: gold, silver) Consumption assets are assets held primarily for consumption(Examples: copper, oil)

The nature of derivatives a derivative is an instrument whose value depends on the values of other more basic underlying variables Options, Futures, and Other Derivatives, 5th edition C 2002 by John C. Hull