Mastering Financial Calculations: A step-by-step guide to the mathematics of financial market instruments, Second edition

Chapter 10. Options

“As with insurance premiums, assuming that option sellers can accurately assess the probability of each possible outcome, their total payments out on expiry of a portfolio of options sold should approximate to the premiums received. Option pricing theory therefore depends on assessing these probabilities.”

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Overview

The ideas behind option pricing

Pricing models

OTC options vs. exchange-traded options

The Greek letters

Hedging with options

Some “packaged” options

Some trading strategies

Some less straightforward options

Exercises

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Overview

Two sections in this chapter include some mathematical equations which may seem rather more complex than those we have looked at so far – the sections on Black–Scholes ...