Summary
Summary Options, Futures and other Derivatives by John Hull
- Course
- Institution
- Book
A summary of the chapters included in the course schedule of the course Derivatives 4.2. Some additions from the slides are added.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Solution manual- Options, Futures, and Other Derivatives 11th Edition -John Hull (Author)
5 reviews
By: rayanmessekher • 2 year ago
By: glrasprey • 6 year ago
By: JoaovandenHeuvel • 6 year ago
By: davidesmaldore • 7 year ago
just random chapters, not clear description of the content before buying
By: jesserussel • 7 year ago
Seller
Followsanne_visser
Reviews received
Content preview
Options, Futures, and other DerivativesBy John C. Hull
CHAPTER 10 Properties of Stock Options
We use a number of different arbitrage arguments to explore the relationships between
European option prices, American option prices, and the underlying stock price. The
most important of these relationships is put–call parity, which is a relationship between
the price of a European call option, the price of a European put option, and the
underlying stock price. The chapter examines whether American options should be
exercised early. It shows that it is never optimal to exercise an American call option on a
non-dividend-paying stock prior to the option’s expiration, but that under some
circumstances the early exercise of an American put option on such a stock is optimal.
When there are dividends, it can be optimal to exercise either calls or puts early.
Factors affecting the price of a stock option
There are six factors affecting the price of a stock option:
• The current stock price, S0
• The strike price, K
• The time to expiration, T
• The volatility of the stock price, σ
• The risk-free interest rate, r
• The dividends that are expected to be paid
The table below summarizes the effect on the price of a stock option of increasing one
variable while keeping all other fixed.
Variable European call European put American call American put
S0 + - + -
K - + - +
T ? ? + +
σ + + + +
R + - + -
Div - + - +
The payoff of a call options is the amount by which the stock price exceeds the
strike price. For a put option the payoff is the amount by which the strike price
exceeds the stock price, and thus behave in the opposite way from call options.
The time to expiration has a positive effect on American options, because the
owner of a long-life option has all the exercise opportunities open to the owner of
the short-life option – and more.
A dividend causes the stock price to decline.
The volatility of a stock price is a measure of how uncertain we are about future
stock price movements. The owner of a call benefits from price increases but has
limited downside risk in the event of price decreases because the most the owner
can lose is the price of the option. Similarly, the owner of a put benefits from price
decreases, but has limited downside risk in the event of price increases.
As interest rates in the economy increase, the expected return required by
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller sanne_visser. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.81. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67096 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now
Recently viewed by you
Package deal ·
AMEDD |Army Medical Department| Bundle
Package deal ·
Georgia Pesticide Exams Bundle (Graded A)
Summary ·
Einddoelen Week 4 CELBIOLOGIE
Exam (elaborations) ·
NUR 115 Test 2 Study Guide
