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Options — A Deeper Dive

In: Fixed Coupon Note High Returns and Low Risk

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  • Rajiv Aggarwal

Abstract

While covering the basics of Options in Chapter 2, we purposefully avoided going into the mathematical formulas which are used to calculate the price of an Option. While Options on commodities and other products have been around for hundreds of years, the Chicago Board Options Exchange was the first Exchange to launch listed Options on single stocks in 1973. Initially the pricing of Options was a difficult and complex subject. In fact, for the first four years, only Call Options were traded and Put Options were introduced only in 1977. Options on indices like S&P 500 were introduced even later in 1983. Thankfully, Fischer Black and Myron Scholes came up with a theoretical model for pricing Options in 1973. This model was so revolutionary that they were awarded the Nobel Prize. In order to understand how this model calculates the prices of Options, we need to start with an understanding of Log- normal Distribution…

Suggested Citation

  • Rajiv Aggarwal, 2020. "Options — A Deeper Dive," World Scientific Book Chapters, in: Fixed Coupon Note High Returns and Low Risk, chapter 5, pages 111-121, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811225048_0005
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    More about this item

    Keywords

    Investments; Wealth Management; Structured Products; Reverse Convertibles; Autocallables; Investors; Investment Bank; Equity; Fixed Income; Bonds; Index; Phoenix Note;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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