ADMN 4300H Lecture Notes - Lecture 14: Option Style, Spot Contract, Call Option
30 Mar 2020
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Document Summary
Options: many corporate securities are similar to the stock options that are traded on organized exchanges, almost every issue of corporate shares and bonds has option features. In addition, capital structure and capital budgeting decisions can be viewed in terms of options. When exercising a put, you put the asset to someone: exercising the option, the act of buying or selling the underlying asset through the option contract. Intrinsic value: the (positive) difference between the exercise price of the option and the spot price of the underlying asset. Speculative value: the difference between the option premium and the intrinsic value of the option. Basic call option pricing relationships at expiry: at expiry, an american call option is worth the same as a european option with the same characteristics. If the call is in-the-money, it is worth st e. If the call is out-of-the-money, it is worthless.
