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Derivatives and Risk Management by Ranganatham Ranganatham, Madhumathi Madhumathi

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chapter 16

Pricing Options

Learning Objectives

After reading this chapter, you will be able to understand

  • the rational boundaries of option contracts
  • the binomial model of option pricing
  • the Black-Scholes model of pricing options
  • the difference in valuation of American and European options
  • put-call parity
  • the limitations of the pricing of options
Chapter Outline

16.1 Introduction

16.2 Rational Boundaries of Option Contracts

16.3 Variations in the Basic Structure of Options

16.4 Binomial Option Pricing Model

16.5 Black-Scholes Option Pricing Model

16.6 Pricing Options on Futures

16.7 Put-Call Parity Relationship

16.8 Comparison of Black-Scholes with Binomial Valuations

16.9 Implied Volatilities

16.10 Criticism on Option-Pricing Models

THE ...

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