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I have a very basic ques.. But its really confusing me. why the value of option is share price – excercise price?
If it was a call option exercisable immediately, then the option gives you the right to buy a share at a fixed price.
So, for example, if the current share price is $4.00 and you could buy an option giving you the right to buy the share at an exercise price of $3.70, then you could buy the share for $3.70 and immediately sell it for $0.30.
Nobody is going to give you that right free! You would be prepared to pay $0.30 for the option. Then you could use it and buy a share for $3.70. You have then spent $4.00 in total and you own a share worth $4.00
(But of course, that is only if the option were exercisable immediately. In practice the option will be the right to buy a share at a fixed price on a future date, and to get the value of that we need to use all the formulae.)
John you are God sent! what will we do without you and opentuition?!
Thank you so much for teaching me how to get more value using a scientific calculator!
This is invaluable! I have a scientific calculator and i had no idea how all this buttons worked ln and e* now you have educated me on the standard normal distribution table! whew u saved me a head ache. for a while there when i saw the formulae i imagened it must be some enginering formulae forgotten on P4 paper by error!
It means this paper should have more calculations and less writing , how then are we expected to mix the two?! I mean just one question on options is enough to give one a head ache. God have mercy on us!
But Thank God for Opentuition iam confident iam finalising and passing this June 2013 exams. Watch this space i will update u all. John you are our guardian angel!
Example 4. When the lecturer was doing the call option formula, he made a mistake and put t=.4 when it should be .25… so answer is actually 4cents and not 5cents…. whew
Thank you very much for an invaluable lecture! You are brilliant, concise and straight to the point! Really appreciate the assistance.
You do help clarify all these complicated issues.
Thank you for all ur effort.
Benefit a lot
please verify that on the last question,the “T” you used is annual and not adjusted for 3 months as it should be 0.25 and not 0.4.
@dladla, You are correct – sorry. I used the correct T for calculating d1 and d2, but then made a mistake in the equation for c.
You can see the correct answer at the back of the Course Notes.
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thanks, i know how to use the formulaes ald…
Wonderful lecture. I picked up a great deal! Keep it up
great explanation here!
Isn’t it possible to incorporate video speed controls within the player? It would really help since some may never have enough time to watch at the normal speed. I would request you to consider takling to the company providing the streaming and update if possible.
pls fix the techinal problem of this lecture i am reling on it its not running after 15 mins.
the lecture is not running after 15 mins
my calculator isgivig wrong answer on the In(pa/pe) maybe im getting it wrong. whos is there to help me???
thanks a lot…i didnt look at the answer in the notes just checked my answer against the video thanks a lot
Thanks for your comments.
You are correct that it is e^-0.025, but that is what is in the answer to example 5 in the notes. I think the answer is correct.
Also, thanks everything for putting these valuable lectures online, is even better and more thorough than Kaplan!!
i think the example 5 is wrong when working the call & put option, my e^-rt is actually e^-0.1*0.25; i.e. e^-0.025 or have i missed something? thanks
It seems the tutor made an error in the lecture (example 5 around 53:01) where he says the ‘t’ in e^-rt is 0.4 instead of 0.25 (3months).
But if you look at page 144 in the OT notes, the answer to example 5 in chapter 13 (share options and option pricing) shows the correct figure, t = 0.25.
Brilliant lecture, I’ve picked up a lot more from here than I did in class! Thank you!
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