FIN 3410 Lecture Notes - Lecture 5: Performance Bond, Call Option, Moneyness
Document Summary
Pb0 = ,700 initial performance bond balance. 1: gains/losses = csize * (f0 f1) + pb0, gains/losses = csize * (f1 f2) + pb1, gains/losses = csize * (f3 f2) + pb2. Same as 1, but long futures in e. Gives holder the right to buy/sell a given quantity of an asset in the future at prices agreed upon today. Puts: calls are right to buy, puts are right to sell. European vs. american: euro options only exercised on the expiration date, american can be exercised at any time up to and including expiration date, moneyness. Usually worth more than euro options, other things equal. If immediate exercise is profitable, the option is (cid:498)in the money(cid:499) (cid:498)out of the money(cid:499) options can still have value (cid:498)at the money(cid:499) Example: intrinsic value for call option. So = . 30/e > e = . 20/e. So = . 10/e < e = . 20/e: intrinsic value for put option.