Lecture 11 Flashcards Preview

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Flashcards in Lecture 11 Deck (55):
1

Multi-Period Binomial Model

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Risk-neutral probability:

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Two-period binomial example

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value of the call at t = 0

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Replication method

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7

Theorem on Early Exercise of an American Call

It is never optimal to exercise early an American call on a
non-dividend paying stock.

8

Theorem on Early Exercise of an American Put

the price of an American put on a non-dividend paying stock
may be greater than the price of the corresponding European put. It may be optimal to exercise early an American put on
non-dividend paying stock.

9

Black-Scholes price for a call:

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Properties of the Black-Scholes Prices

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11

Practical Implementation of Black-Scholes Model

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12

Historical Volatility - steps to calculate

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Implied volatility

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