Pricing and Valuation of Options CFA Flashcards - Medical Study Cards
Master Pricing and Valuation of Options with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Pricing and Valuation of Options Flashcard Deck - 10 Cards
Flashcard 11: In Derivatives (Pricing of Options), what does "moneyness" refer to?
Answer: Whether an option is currently in the money, out of the money, or at the money based on the relationship between the underlying asset price and the exercise price.
Flashcard 12: In Derivatives (Pricing of Options), what is the condition for a put option to be "in the money"?
Answer: When the exercise price \(X\) is greater than the price of the underlying asset \(S\) \((X - S > 0)\).
Flashcard 13: In options valuation, what formula determines the profit of a Long Call option at expiration?
Answer: \[\text{Profit} = \text{Max}(0, S - X) - \text{Premium}\]
Flashcard 14: In Derivatives (Pricing of Options), what is the upper bound for the price of a European put option?
Answer: The present value of the exercise price discounted at the risk-free rate: \[p_0 \le X (1 + R_f)^{-T}\]
Flashcard 15: In Derivatives (Pricing of Options), how does an increase in the underlying asset's price affect call and put option values?
Answer: It increases call option values and decreases put option values.
Flashcard 16: In Derivatives (Pricing of Options), how do dividend payments or convenience yields on the underlying asset affect call and put option values?
Answer: They decrease the value of call options and increase the value of put options.
Flashcard 17: In Derivatives (Pricing of Options), what is the formula for the exercise (intrinsic) value of a put option?
Answer: \[\text{Exercise Value} = \text{Max}[0, X - S]\]
Flashcard 18: In Derivatives (Pricing of Options), how does an increase in the exercise price affect call and put option values?
Answer: It decreases call option values and increases put option values.
Flashcard 19: In Derivatives (Pricing of Options), what is the formula for the exercise (intrinsic) value of a call option?
Answer: \[\text{Exercise Value} = \text{Max}[0, S - X]\]
Flashcard 20: In options valuation, what formula determines the value of a Long Put option at expiration?
Answer: \[\text{Value} = \text{Max}(0, X - S)\] Where \(S\) is the spot price and \(X\) is the exercise price.
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