Microsoft PowerPoint - PoF.ppt

ƒ 241 Call ƒ When S becomes very small , a call option is almost certain to be not exercised . Ä Expect the call price to be 0 . ...

ƒ 242 Call ƒ When σ becomes 0 , the stock is virtually riskless, its price will grow at rate r to Se rT at time T and the payoff ...

ƒ 243 Put ƒ When σ becomes 0 , the stock is virtually riskless , its price will grow at rate r to Se rT at time T and the payoff ...

Greeksƒ 244 Delta: change of the option price given a change in the underlying price. ƒ Black-Scholes delta of a call with E = 1 ...

ƒ 245 Gamma: change of the delta given a change in the underlying price. Note: If gamma is small, delta changes only very slowly ...

ƒ 246 Rho: change of the option price given a change in the “riskless”interest rate. ƒ Black-Scholes rho of a call with E = 100, ...

ƒ 247 Theta: change of the option price given a change in t.In other words, theta measures how fa st the value of the option cha ...

ƒ 248 Vega: change of the option price given a change in the volatility. ƒ Black-Scholes vega of a call with E = 100, T = 1y, r ...

Payoffs of path-independent optionsƒ 249 European call and put ƒ American call and put ƒ Bermudan call and put ... like American ...

Payoffs of path-dependent optionsƒ 250 Barrier options ƒ Up and out call ƒ Up and in call ƒ Down and out call ƒ Down and in call ...

Payoffs of path-dependent optionsƒ 251 Lookback options ƒ Call ƒ Put ƒ Shout option ƒ Average / Asian option T t T t S S − ∈ ] , ...

Payoffs of multi-asset optionsƒ 252 Basket option ƒ Quanto option ƒ And much, much more. assets for the weights the are where, , ...

Payoffs of options on optionsƒ 253 Compound option ƒ Chooser option ƒ And much, much more. ( ) T T c E c T T > − ˆ maturity w ...

Overviewƒ 254 Introduction ƒ Interest rate swap ƒ Currency swap ƒ Pricing swaps with forwards Derivative securities: Swaps ...

Definitionƒ 255 A swap is an agreement to exchange cash flows at specified future times according to certain specified rules . D ...

Interest rate swapƒ 256 Converting cash flows (investments or liabilities) from ƒ fixed rate to floating rate OR ƒ floating rate ...

Exampleƒ 257 An agreement by “Company B” to receive 6-month LIBOR and pay a fixed rate of 5% per annum every 6 months for 3 year ...

Currency swapƒ 258 Converting cash flows (investments or liabilities) from one currency in another currency. The coupon payments ...

Exampleƒ 259 An agreement by “Company B” to pay 11% on a FV of £10,000,000 and receive 8% on a FV of $15,000,000 every year for ...

Pricing swaps with forwardsƒ 260 A swap can be regarded as a convenient way of packaging forward contracts. ƒ The interest rate ...