OPTIONS — A DEEPER DIVE

Rajiv Aggarwal

Chapter 5 in Fixed Coupon Note:High Returns and Low Risk, 2020, pp 111-121 from World Scientific Publishing Co. Pte. Ltd.

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…

Keywords: Investments; Wealth Management; Structured Products; Reverse Convertibles; Autocallables; Investors; Investment Bank; Equity; Fixed Income; Bonds; Index; Phoenix Note (search for similar items in EconPapers)
JEL-codes: G11 G24 (search for similar items in EconPapers)
Date: 2020
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