Option Pricing
Module code: AF3146
This module discusses option pricing theory. You will define European and American put and call options, and apply the concepts of European and American put-call parity. You will learn and practice pricing option with binominal tree and the Black-Scholes models. You will discuss the concept of risk neutrality and the non-arbitrage theorem and you will learn investment strategies utilising options and the underlying assets.
Topics covered:
- Mechanics of options markets
- The binominal model of option pricing
- The Black-Scholes model of option pricing
- Delta hedging and extension of BSM
- Trading strategies involving options
- Employee stock option
- The idea of mean change
- Risk neutral probabilities
- The non-arbitrage theorem and its application
- Value-at-risk