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SYLLABUS
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4.5.2 Expected value of
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4 EUROPEAN OPTION PAYOFF
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4.7 Exercises
4.6 Computer quiz
The present value of an plain vanilla option can be calculated using
the average terminal payoff from possible realizations of the underlying
the payoff from the average possible realization of the underlying
the time averaged payoff from possible realization of the underlying
Approaching the expiry, the price of a vanilla call on a share without dividends
rises everywhere and particularly at the money
falls everywhere and particularly at the money
rises out-of-the-money and falls in-the money
falls out-of-the-money and rises in-the-money
For the same underlying and time to expiry, a larger strike price yields
a higher price for the vanilla put
a higher price for the vanilla call
a higher price for the cash-or-nothing call
In a risk-neutral Monte-Carlo simulation with shares is
the drift is equal to the long-term average growth of the stock market
the drift is larger than the risk-free interest rate
the drift is equal to the risk-free interest minus the dividend yield
the volatility is equal to zero
With a 'frown' or an inverted 'smile' in the implied volatility, the market expects
a systematic fall in the underlying (bear market)
a systematic rise in the underlying (bull market)
expects rather stable prices for the underlying
A negative time value is obtained from
a finite interest rates in the case of a vanilla call option
a finite dividend yield in the case of a vanilla call option
the volatility in the case of a super-share
SYLLABUS
Previous:
4.5.2 Expected value of
Up:
4 EUROPEAN OPTION PAYOFF
Next:
4.7 Exercises
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Lifelong-learners
at 15:48:49, November 22nd, 2017