Microsoft PowerPoint - PoF.ppt

Long call optionƒ 161 Payoff and profit/loss diagram ƒ Profit / loss table ƒ Algebraic representation Derivative securities: Opt ...

Example: Hedging a FX-Loanƒ 162 Profit/loss diagram += Derivative securities: Options - Introduction ...

Example: Hedging a FX-Loanƒ 163 Profit/loss diagram += Derivative securities: Options - Introduction ...

Remarksƒ 164 These simple profit/loss representa tions do not take into account: ƒ The time value of money. In other word s, the ...

Short call optionƒ 165 Payoff and profit/loss diagram ƒ Profit / loss table ƒ Algebraic representation Derivative securities: Op ...

Short call optionƒ 166 The payoff and profit/loss diagram for the writer is exactly the opposite to that of the buyer. ƒ Writing ...

Remarksƒ 167 The payoffs to the writer and buyer of an option are perfectly negatively correlated; i.e., the options-related wea ...

Long put optionƒ 168 Payoff and profit/loss diagram ƒ Profit / loss table ƒ Algebraic representation Derivative securities: Opti ...

Short put optionƒ 169 Payoff and profit/loss diagram ƒ Profit / loss table ƒ Algebraic representation Derivative securities: Opt ...

Short put optionƒ 170 The payoff or profit/loss diagram for the writer is exactly the opposite to that of the buyer. ƒ Writing a ...

Portfolio insuranceƒ 171 The return relationship of a put and the underlying asset are fundamentally different. This makes puts ...

Portfolio insuranceƒ 172 Thus, portfolio insurance is a strategy that offers “insurance policy” on an asset. It works similarly ...

Example: Portfolio insuranceƒ 173 Suppose a portfolio has a value of $100. ƒ Suppose a put option with exercise price (strike pr ...

ƒ 174 Profit / loss table ƒ In other words, including the put in the portfolio limits the loss to $0.80 for every $2.00 lost on ...

Example: Synthetic portfolio insuranceƒ 175 We now that the delta of the put option is -0.6 ƒ Buy delta shares, i.e. sell 60% of ...

Portfolio insurance: The “collar”ƒ 176 Portfolio insurance is used to ensure against declines in asset values. Sometimes, we can ...

Portfolio insurance: The “collar”ƒ 177 Payoff diagram ƒ Payoff table Derivative securities: Options - Introduction ...

Put-call parityƒ 178 Consider the following portfolio: ƒ Buy 1 share of the stock ƒ Write one call on the stock with exercise pr ...

Put-call parityƒ 179 Price and payoff table ƒ Note ƒ No matter what happens at expi ration, this portfolio pays E. ƒ In the abse ...

Put-call parity 180 -C t + P t + S t = PV (E) ort C t = P t + S t -PV (E) ort P t = C t -S t + PV (E)t Note:P T -C T = PV T (E) ...