Lecture Business finance (9/e) - Chapter 19: Options and contingent claims

Chapter 19 Options and Contingent Claims Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 19–1 Prepared by Dr Buly Cardak Learning Objectives • Understand the major types and characteristics of options and distinguish between options and futures. • Identify and explain the factors that affect option prices. • Understand and apply basic option pricing theorems, including put–call parity. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 19–2 Prepared by Dr Buly Cardak Learning Objectives (cont.) • Understand the binomial model and Black–Scholes model of option pricing and calculate option prices using these models. • Explain the characteristics and uses of foreign currency options and options on futures. • Define a contingent claims and explain the option-like features of several contingent claims. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 19–3 Prepared by Dr Buly Cardak Options and Option Markets • An ‘option’ is the right to force a transaction to occur at some future time on terms and conditions decided now. • It is a contract which gives the purchaser the right, but not the obligation, to assume a long (buy) or short (sell) position in the relevant underlying financial instrument or future at a predetermined exercise (strike) price, at a time in the future. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 19–4 Prepared by Dr Buly Cardak Options and Option Markets (cont.) • In return for this right the purchaser pays a the option price to the seller (‘writer’) of the option. • Unlike FRAs and futures contracts, options allow the benefits of favourable price movements and provide protection against unfavourable price movements. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 19–5 Prepared by Dr Buly Cardak ... - tailieumienphi.vn