CHAPTER 7
Options and Their Valuation
LEARNING OBJECTIVES
- Explain the meaning of the term option.
- Describe the types of options and conditions for exercising options.
- Discuss the implications of combinations of options.
- Calculate the value and pay off of call and put option and their combinations.
- Highlight the factors that have an influence on the valuation of options.
- Develop a simple model of valuing options and Illustrate with example.
- Show how Black-Scholes model of option valuation works.
- Explain the logic of treating shares on options.
INTRODUCTION
Option means several things to different people.1 It may refer to a choice or alternative or privilege or opportunity or preference or right. To have options is normally regarded good. ...
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