Thursday, 19 February 2009

The premium of an option

the 's Family of Funds owe much of their success to holds an MBA Is the price that the buyer of an option (put or call) pays the seller in exchange for the right (to buy or sell the underlying pre-conditions, respectively) New York Stock Exchange under the option contract. In return for the premium, the seller of a put option is obligated to purchase the asset if the buyer exercises his option. Symmetrical manner, the Ribotsky buyer of a put would have the right (in case of exercising the option) to sell the underlying conditions. In the case of a call, the stocks buyer has the right to buy the underlying against payment of a premium, and vice versa for the seller to call. Update is dedicated to Ribotsky and The seller of the option if the premium charged, regardless of who exercises the option.
The premium of an option is negotiated according to the law of supply and demand sets the market. However, there are theoretical models that attempt to determine the option price, depending on a number of parameters:
- Price of the underlying investment asset
- Exercise price
- Interest rate
- Dividends payable (only in stock options).
- Time to maturity
- Future Volatility
Influence of interest funds rates in the prices of the options:
A rise in interest rates causing a reduction in the price of a Put Option.
A rise in interest rates causing an increase in the investment management price of the Call option.
In general, changes in interest rates have no significant influence on the price of the options, which in practice are NYSE not taken into consideration.
Influence of increased volatility in the price of the options
The increase in volatility causes an increase in the price of the option, both call and put options.
The decline in volatility causes the opposite hedge funds effect, ie lowering its price.
See also: Grade of money

Feb 19, 2009 6:54:58 AM

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