THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 395
Bạn đang xem bản rút gọn của tài liệu. Xem và tải ngay bản đầy đủ của tài liệu tại đây (50.56 KB, 1 trang )
CHAPTER 14
Risk Management with Financial Derivatives
363
Net Profit
Profit line
from buying
a call option
0
X
X+
Asset price at
expiration (S )
Profit line
from writing
a call option
F I G U R E 14 - 1
Profits from Buying and Writing a Call Option
at a price between X and X - ,, the gain would be insufficient to cover the cost
of the premium, while at a price above X - , the call will yield a net profit. In
fact, at a price above X - ,, each $1 rise in the price of the asset will cause the
profit of the call option to increase by $1.
The payoff function from writing the call option is the mirror image of the payoff
function from buying the call and is represented by the dashed line in Figure 14-1.
Note that the writer of the call receives the call premium , up front and must stand
ready to sell the underlying asset to the buyer of the call at the exercise price X, if the
buyer exercises the option to buy.
In general, the value of a call option C at expiration with asset price S (at that
time) and exercise price X is
C * max (0, S + X )
In other words, the value of a call option at maturity (also known as the
intrinsic value) is the difference between the current asset price and the exercise price, S + X, or zero, whichever is greater. If the stock price happens to be
greater than the exercise price (S . X), the call is said to be in the money, and
the owner will exercise it for a net profit of C + ,. If the asset price happens to
be less than the exercise price (S / X), the call is said to be out of the money
and will expire worthless. A call with S * X is said to be at the money or
trading at par.
As already noted, a second type of option contract is the put option. A put option is a contract that gives the owner the right
(but not the obligation) to sell an asset (to the option writer) at the specified exercise price within a specific period of time. As a put represents an option to sell
rather than buy, it is worth buying a put when the price of the underlying asset is
PROFIT AND LOSSES ON PUTS
