Management and Organizational Studies 1023A/B Lecture 9: Lecture 9

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Maria Ferraro

Document Summary

Derivatives allow us to hedge our risk they protect us if things don"t go the way we hope. The instrument we"re trading on means nothing it is the underlying security that is the value of the derivative aka an indirect claim. Derivative will increase leverage = returns are magnified given the same transaction. Option it is an option to exercise transactions happening off to the side from investor to investor. Call the buyer has the right to exercise that option contract will allow buyer to buy shares at a certain price at a certain time. Put- buyer has the right to sell the stock back to the writer of the option. Exercise price = strike price = price to be bought or sold at. American able to exercise any time until the date. Bermudan specific series of dates until the expiration date. Premium amount the option costs amount paid for the privilege to hold the option.