Chapter 17 Options on Stock Indices and Currencies

Options on stock indices and currencies were introduced in Chapter 10. This chapter discusses them in more detail. It explains how they work and reviews some of the ways they can be used. In the second half of the chapter, the valuation results in Chapter 15 are extended to cover European options on a stock paying a known dividend yield. It is then argued that both stock indices and currencies are analogous to stocks paying dividend yields. This enables the results for options on a stock paying a dividend yield to be applied to these types of options as well.

17.1 Options on Stock Indices

Several exchanges trade options on stock indices. Some of the indices track the movement of the ...

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