Option (nance)

1 History

Stock option redirects here. For the employee incentive, see Employee stock option.

1.1 Historical uses of options

In nance, an option is a contract which gives the buyer
(the owner or holder) the right, but not the obligation, to
buy or sell an underlying asset or instrument at a specied strike price on or before a specied date, depending
on the form of the option. The strike price may be set by
reference to the spot price (market price) of the underlying security or commodity on the day an option is taken
out, or it may be xed at a discount or at a premium. The
seller has the corresponding obligation to fulll the transaction to sell or buy if the buyer (owner) exercises
the option. An option that conveys to the owner the right
to buy at a specic price is referred to as a call; an option
that conveys the right of the owner to sell at a specic
price is referred to as a put. Both are commonly traded,
but the call option is more frequently discussed.

Contracts similar to options have been used since ancient

times.[1] The rst reputed option buyer was the ancient
Greek mathematician and philosopher Thales of Miletus.
On a certain occasion, it was predicted that the seasons
olive harvest would be larger than usual, and during the
o-season, he acquired the right to use a number of olive
presses the following spring. When spring came and the
olive harvest was larger than expected he exercised his
options and then rented the presses out at much higher
price than he paid for his 'option'.[2][3]
In London, puts and refusals (calls) rst became wellknown trading instruments in the 1690s during the reign
of William and Mary.[4] Privileges were options sold over
the counter in nineteenth century America, with both puts
and calls on shares oered by specialized dealers. Their
exercise price was xed at a rounded-o market price
on the day or week that the option was bought, and the
expiry date was generally three months after purchase.
They were not traded in secondary markets.

The seller may grant an option to a buyer as part of another transaction, such as a share issue or as part of an
employee incentive scheme, otherwise a buyer would pay
a premium to the seller for the option. A call option
would normally be exercised only when the strike price
is below the market value of the underlying asset, while
a put option would normally be exercised only when the
strike price is above the market value. When an option
is exercised, the cost to the buyer of the asset acquired is
the strike price plus the premium, if any. When the option expiration date passes without the option being exercised, then the option expires and the buyer would forfeit
the premium to the seller. In any case, the premium is
income to the seller, and normally a capital loss to the
buyer.

In the real estate market, call options have long been used
to assemble large parcels of land from separate owners;
e.g., a developer pays for the right to buy several adjacent
plots, but is not obligated to buy these plots and might not
unless he can buy all the plots in the entire parcel. Film
or theatrical producers often buy the right but not the
obligation to dramatize a specic book or script.

Lines of credit give the potential borrower the right

but not the obligation to borrow within a specied time
The owner of an option may on-sell the option to a third period.
party in a secondary market, in either an over-the-counter Many choices, or embedded options, have traditionally
transaction or on an options exchange, depending on the been included in bond contracts. For example, many
option. The market price of an American-style option bonds are convertible into common stock at the buyers
normally closely follows that of the underlying stock, be- option, or may be called (bought back) at specied prices
ing the dierence between the market price of the stock at the issuers option. Mortgage borrowers have long had
and the strike price of the option. The actual market price the option to repay the loan early, which corresponds to a
of the option may vary depending on a number of factors, callable bond option.
such as a signicant option holder may need to sell the option as the expiry date is approaching and does not have
the nancial resources to exercise the option, or a buyer 1.2 Modern stock options
in the market is trying to amass a large option holding.
The ownership of an option does not generally entitle the Options contracts have been known for decades. The
holder to any rights associated with the underlying asset, Chicago Board Options Exchange was established in
such as voting rights or any income from the underlying 1973 which set up a regime using standardized forms
asset, such as a dividend.
and terms and trade through a guaranteed clearing house.
1

3 OPTION TRADING

Trading activity and academic interest increased since

then.

stock market index options or, simply, index options

and

Today, many options are created in a standardized form

options on futures contracts
and traded through clearing houses on regulated options
callable bull/bear contract
exchanges, while other over-the-counter options are written as bilateral, customized contracts between a single
buyer and seller, one or both of which may be a dealer or
3.1.2 Over-the-counter options
market-maker. Options are part of a larger class of nancial instruments known as derivative products, or simply,
Over-the-counter options (OTC options, also called
derivatives.[5][6]
dealer options) are traded between two private parties,
and are not listed on an exchange. The terms of an OTC
option are unrestricted and may be individually tailored to
2 Contract specications
meet any business need. In general, the option writer is a
well-capitalized institution (in order to prevent the credit
A nancial option is a contract between two counter- risk). Option types commonly traded over the counter
parties with the terms of the option specied in a term include:
sheet. Option contracts may be quite complicated; however, at minimum, they usually contain the following
interest rate options
specications:[7]
currency cross rate options, and
whether the option holder has the right to buy (a call
option) or the right to sell (a put option)

options on swaps or swaptions.

By avoiding an exchange, users of OTC options can narrowly tailor the terms of the option contract to suit individual business requirements. In addition, OTC op the strike price, also known as the exercise price, tion transactions generally do not need to be advertised to
which is the price at which the underlying transac- the market and face little or no regulatory requirements.
tion will occur upon exercise
However, OTC counterparties must establish credit lines
with each other, and conform to each others clearing and
the expiration date, or expiry, which is the last date
settlement procedures.
the option can be exercised
With few exceptions,[10] there are no secondary markets
the settlement terms, for instance whether the writer for employee stock options. These must either be exermust deliver the actual asset on exercise, or may sim- cised by the original grantee or allowed to expire.
ply tender the equivalent cash amount
the quantity and class of the underlying asset(s) (e.g.,
100 shares of XYZ Co. B stock)

the terms by which the option is quoted in the market 3.2 Exchange trading
to convert the quoted price into the actual premium
the total amount paid by the holder to the writer
The most common way to trade options is via standardized options contracts that are listed by various futures
and options exchanges. [11] Listings and prices are
3 Option trading
tracked and can be looked up by ticker symbol. By publishing continuous, live markets for option prices, an exchange enables independent parties to engage in price dis3.1 Forms of trading
covery and execute transactions. As an intermediary to
both sides of the transaction, the benets the exchange
3.1.1 Exchange-traded options
provides to the transaction include:
Exchange-traded options (also called listed options)
fulllment of the contract is backed by the credit of
are a class of exchange-traded derivatives. Exchange
the exchange, which typically has the highest rating
traded options have standardized contracts, and are set(AAA),
tled through a clearing house with fulllment guaranteed
by the Options Clearing Corporation (OCC). Since the
counterparties remain anonymous,
contracts are standardized, accurate pricing models are
often available. Exchange-traded options include:[8][9]
enforcement of market regulation to ensure fairness
and transparency, and
stock options,
maintenance of orderly markets, especially during
bond options and other interest rate options
fast trading conditions.

3.3

3.3

Basic trades (American style)

Basic trades (American style)

it

of

ff
yo

Pa

0
Premium

Profit

3.3.1

Pr

These trades are described from the point of view of a

speculator. If they are combined with other positions,
they can also be used in hedging. An option contract in
US markets usually represents 100 shares of the underlying security.[12][13]
Long call

Share Price at Maturity

Long Put

Strike
Price

it
Pr
of

Pa

yo
ff

Payo from buying a put.

at a later date. The trader will be under no obligation

to sell the stock, but only has the right to do so at the
Premium
expiration date. If the stock price at expiration is below
the exercise price by more than the premium paid, he will
make a prot. If the stock price at expiration is above the
exercise price, he will let the put contract expire and only
Share Price at Maturity
Strike
lose the premium paid. In the transaction, the premium
Long Call
Price
also plays a major role as it enhances the break-even point.
For example, if exercise price is 100, premium paid is 10,
Payo from buying a call.
then a spot price of 100 to 90 is not protable. He would
A trader who expects a stocks price to increase can buy make a prot if the spot price is below 90.
a call option to purchase the stock at a xed price ("strike
price") at a later date, rather than purchase the stock outright. The cash outlay on the option is the premium. The
3.3.3 Short call
trader would have no obligation to buy the stock, but only
has the right to do so at the expiration date. The risk
of loss would be limited to the premium paid, unlike the
possible loss had the stock been bought outright.
Profit

Profit

it

of

Pr

The holder of an American style call option can sell his

option holding at any time until the expiration date, and
Premium
Payoff
would consider doing so when the stocks spot price is
0
above the exercise price, especially if he expects the price
of the option to drop. By selling the option early in that
situation, the trader can realise an immediate prot. Alternatively, he can exercise the option for example, if
there is no secondary market for the options and then
Share Price at Maturity
sell the stock, realising a prot. A trader would make a
Strike
Short Call
Price
prot if the spot price of the shares raises by more than
the premium. For example, if exercise price is 100 and
Payo from writing a call.
premium paid is 10, then if the spot price of 100 raises
to only 110 the transaction is breakeven; and an increase
in stock price above 110 produces a prot.
A trader who expects a stocks price to decrease can sell
If the stock price at expiration is lower than the exercise the stock short or instead sell, or write, a call. The
price, the holder of the options at that time will let the call trader selling a call has an obligation to sell the stock to
contract expire, and only lose the amount of the premium the call buyer at a xed price (strike price). If the seller
does not own the stock when the option is exercised, he
(or the price paid on transfer).
is obligated to purchase the stock from the market at the
then market price. If the stock price decreases, the seller
3.3.2 Long put
of the call (call writer) will make a prot in the amount of
the premium. If the stock price increases over the strike
A trader who expects a stocks price to decrease can buy a price by more than the amount of the premium, the seller
put option to sell the stock at a xed price (strike price) will lose money, with the potential loss being unlimited.

3 OPTION TRADING

of

it

Premium

ff

Profit

Profit

Pa
yo

Payoff

Pr

Premium

Pr
of
it

Share Price at Maturity

Short Put

Strike
Price

Payo from writing a put.

3.3.4

Share Price at Maturity

Short Straddle

Payos from selling a straddle.

Short put

A trader who expects a stocks price to increase can buy

the stock or instead sell, or write, a put. The trader
selling a put has an obligation to buy the stock from the
put buyer at a xed price (strike price). If the stock
price at expiration is above the strike price, the seller of
the put (put writer) will make a prot in the amount of
the premium. If the stock price at expiration is below the
strike price by more than the amount of the premium, the
trader will lose money, with the potential loss being up to
the strike price minus the premium. A benchmark index
for the performance of a cash-secured short put option
position is the CBOE S&P 500 PutWrite Index (ticker Payos from a covered call.
PUT).
ple, buying a buttery spread (long one X1 call, short two
X2 calls, and long one X3 call) allows a trader to prot if
the stock price on the expiration date is near the middle
Main article: Option strategies
exercise price, X2, and does not expose the trader to a
Combining any of the four basic kinds of option trades large loss.

3.4

Option strategies

An Iron condor is a strategy that is similar to a buttery

spread, but with dierent strikes for the short options
oering a larger likelihood of prot but with a lower net
credit compared to the buttery spread.
Payoff

Premium

Profit

Profit

Share Price at Maturity

Long Butterfly

Payos from buying a buttery spread.

(possibly with dierent exercise prices and maturities)

and the two basic kinds of stock trades (long and short)
allows a variety of options strategies. Simple strategies
usually combine only a few trades, while more complicated strategies can combine several.
Strategies are often used to engineer a particular risk prole to movements in the underlying security. For exam-

Selling a straddle (selling both a put and a call at the same

exercise price) would give a trader a greater prot than a
buttery if the nal stock price is near the exercise price,
but might result in a large loss.
Similar to the straddle is the strangle which is also constructed by a call and a put, but whose strikes are dierent, reducing the net debit of the trade, but also reducing
the risk of loss in the trade.
One well-known strategy is the covered call, in which
a trader buys a stock (or holds a previously-purchased
long stock position), and sells a call. If the stock price
rises above the exercise price, the call will be exercised
and the trader will get a xed prot. If the stock price
falls, the call will not be exercised, and any loss incurred
to the trader will be partially oset by the premium received from selling the call. Overall, the payos match
the payos from selling a put. This relationship is known

5
as put-call parity and oers insights for nancial theory.
European option an option that may only be exA benchmark index for the performance of a buy-write
ercise on expiry.
strategy is the CBOE S&P 500 BuyWrite Index (ticker
symbol BXM).
These are often described as vanilla options. Other styles
include:

Types

Options can be classied in a few ways.

4.1

According to the option rights

Call options give the holder the rightbut not the

obligationto buy something at a specic price for
a specic time period.
Put options give the holder the rightbut not the
obligationto sell something at a specic price for
a specic time period.

4.2

Bond option
Future option
Index option
Commodity option
Currency option

Other option types

Another important class of options, particularly in the

U.S., are employee stock options, which are awarded by a
company to their employees as a form of incentive compensation. Other types of options exist in many nancial contracts, for example real estate options are often
used to assemble large parcels of land, and prepayment
options are usually included in mortgage loans. However,
many of the valuation and risk management principles apply across all nancial options. There are two more types
of options; covered and naked.[14]

4.4

Asian option an option whose payo is determined by the average underlying price over some
preset time period.
Barrier option any option with the general characteristic that the underlying securitys price must pass
a certain level or barrier before it can be exercised.
Binary option An all-or-nothing option that pays
the full amount if the underlying security meets the
dened condition on expiration otherwise it expires.
Exotic option any of a broad category of options
that may include complex nancial structures.[15]

According to the underlying assets

Equity option

4.3

Bermudan option an option that may be exercised

only on specied dates on or before expiration.

Option styles

5 Valuation overview
Options valuation is a topic of ongoing research in academic and practical nance. In basic terms, the value of
an option is commonly decomposed into two parts:
The rst part is the intrinsic value, which is dened
as the dierence between the market value of the
underlying, and the strike price of the given, option
The second part is the time value, which depends on a set of other factors which, through a
multi-variable, non-linear interrelationship, reect
the discounted expected value of that dierence at
expiration.
Although options valuation has been studied at least since
the nineteenth century, the contemporary approach is
based on the BlackScholes model which was rst published in 1973.[16][17]

6 Valuation models
Main article: Valuation of options

The value of an option can be estimated using a variety of quantitative techniques based on the concept of
risk neutral pricing and using stochastic calculus. The
Options are classied into a number of styles, the most most basic model is the BlackScholes model. More socommon of which are:
phisticated models are used to model the volatility smile.
These models are implemented using a variety of numer American option an option that may be exercised ical techniques.[18] In general, standard option valuation
on any trading day on or before expiration.
models depend on the following factors:
Main article: Option style

7 MODEL IMPLEMENTATION
The current market price of the underlying security, for the price level of the underlying security. Stochastic
volatility models have been developed including one de the strike price of the option, particularly in relation veloped by S.L. Heston.[22] One principal advantage of
to the current market price of the underlying (in the the Heston model is that it can be solved in closed-form,
money vs. out of the money),
while other stochastic volatility models require complex
[22]
the cost of holding a position in the underlying se- numerical methods.
curity, including interest and dividends,

See also: SABR Volatility Model

the time to expiration together with any restrictions

on when exercise may occur, and
an estimate of the future volatility of the underlying
securitys price over the life of the option.

7 Model implementation

Further information: Valuation of options

More advanced models can require additional factors,
such as an estimate of how volatility changes over time
and for various underlying price levels, or the dynamics Once a valuation model has been chosen, there are a number of dierent techniques used to take the mathematical
of stochastic interest rates.
models to implement the models.
The following are some of the principal valuation techniques used in practice to evaluate option contracts.

7.1 Analytic techniques

6.1

BlackScholes

Main article: BlackScholes

Following early work by Louis Bachelier and later work
by Robert C. Merton, Fischer Black and Myron Scholes
made a major breakthrough by deriving a dierential
equation that must be satised by the price of any derivative dependent on a non-dividend-paying stock. By employing the technique of constructing a risk neutral portfolio that replicates the returns of holding an option,
Black and Scholes produced a closed-form solution for
a European options theoretical price.[19] At the same
time, the model generates hedge parameters necessary
for eective risk management of option holdings. While
the ideas behind the BlackScholes model were groundbreaking and eventually led to Scholes and Merton receiving the Swedish Central Bank's associated Prize for
Achievement in Economics (a.k.a., the Nobel Prize in
Economics),[20] the application of the model in actual options trading is clumsy because of the assumptions of continuous trading, constant volatility, and a constant interest
rate. Nevertheless, the BlackScholes model is still one
of the most important methods and foundations for the
existing nancial market in which the result is within the
reasonable range.[21]

6.2

Stochastic volatility models

Main article: Heston model

Since the market crash of 1987, it has been observed that
market implied volatility for options of lower strike prices
are typically higher than for higher strike prices, suggesting that volatility is stochastic, varying both for time and

In some cases, one can take the mathematical model

and using analytical methods develop closed form solutions such as BlackScholes and the Black model. The
resulting solutions are readily computable, as are their
Greeks. Although the Roll-Geske-Whaley model applies to an American call with one dividend, for other
cases of American options, closed form solutions are not
available; approximations here include Barone-Adesi and
Whaley, Bjerksund and Stensland and others.

7.2 Binomial tree pricing model

Main article: Binomial options pricing model
Closely following the derivation of Black and Scholes,
John Cox, Stephen Ross and Mark Rubinstein developed the original version of the binomial options pricing model.[23][24] It models the dynamics of the options
theoretical value for discrete time intervals over the options life. The model starts with a binomial tree of discrete future possible underlying stock prices. By constructing a riskless portfolio of an option and stock (as in
the BlackScholes model) a simple formula can be used
to nd the option price at each node in the tree. This
value can approximate the theoretical value produced by
Black Scholes, to the desired degree of precision. However, the binomial model is considered more accurate
than BlackScholes because it is more exible; e.g., discrete future dividend payments can be modeled correctly
at the proper forward time steps, and American options
can be modeled as well as European ones. Binomial models are widely used by professional option traders. The
Trinomial tree is a similar model, allowing for an up,
down or stable path; although considered more accurate,

7
particularly when fewer time-steps are modelled, it is less
commonly used as its implementation is more complex.

7.3

Monte Carlo models

Main article: Monte Carlo methods for option pricing

8 Risks
As with all securities, trading options entails the risk of
the options value changing over time. However, unlike
traditional securities, the return from holding an option
varies non-linearly with the value of the underlying and
other factors. Therefore, the risks associated with holding
options are more complicated to understand and predict.

In general, the change in the value of an option can be

For many classes of options, traditional valuation tech- derived from It's lemma as:
niques are intractable because of the complexity of the
instrument. In these cases, a Monte Carlo approach may
often be useful. Rather than attempt to solve the dierendS 2
tial equations of motion that describe the options value in
dC = dS +
+ d + dt
relation to the underlying securitys price, a Monte Carlo
2
model uses simulation to generate random price paths of
the underlying asset, each of which results in a payo where the Greeks , , and are the standard hedge
for the option. The average of these payos can be dis- parameters calculated from an option valuation model,
counted to yield an expectation value for the option.[25] such as BlackScholes, and dS , d and dt are unit
Note though, that despite its exibility, using simulation changes in the underlyings price, the underlyings volatilfor American styled options is somewhat more complex ity and time, respectively.
than for lattice based models.
Thus, at any point in time, one can estimate the risk inherent in holding an option by calculating its hedge parameters and then estimating the expected change in the model
inputs, dS , d and dt , provided the changes in these
7.4 Finite dierence models
values are small. This technique can be used eectively
to understand and manage the risks associated with stanMain article: Finite dierence methods for option pricing dard options. For instance, by osetting a holding in an
option with the quantity of shares in the underlying,
a trader can form a delta neutral portfolio that is hedged
The equations used to model the option are often exfrom loss for small changes in the underlyings price. The
pressed as partial dierential equations (see for example
corresponding price sensitivity formula for this portfolio
BlackScholes equation). Once expressed in this form,
is:
a nite dierence model can be derived, and the valuation obtained. A number of implementations of nite
dierence methods exist for option valuation, including:
explicit nite dierence, implicit nite dierence and the
2
2
Crank-Nicholson method. A trinomial tree option pric- d = dS + dS +d+dt = dS +d+dt
2
2
ing model can be shown to be a simplied application of
the explicit nite dierence method. Although the nite
dierence approach is mathematically sophisticated, it is
8.1 Example
particularly useful where changes are assumed over time
in model inputs for example dividend yield, risk free
A call option expiring in 99 days on 100 shares of XYZ
rate, or volatility, or some combination of these that
stock is struck at $50, with XYZ currently trading at $48.
are not tractable in closed form.
With future realized volatility over the life of the option
estimated at 25%, the theoretical value of the option is
$1.89. The hedge parameters , , , are (0.439,
0.0631, 9.6, and 0.022), respectively. Assume that on
7.5 Other models
the following day, XYZ stock rises to $48.5 and volatility
falls to 23.5%. We can calculate the estimated value of
Other numerical implementations which have been used the call option by applying the hedge parameters to the
to value options include nite element methods. Addi- new model inputs as:
tionally, various short rate models have been developed
for the valuation of interest rate derivatives, bond options
and swaptions. These, similarly, allow for closed-form,
(
)
lattice-based, and simulation-based modelling, with cor0.52
dC = (0.4390.5)+ 0.0631
+(9.60.015)+(0.0221) = 0.06
responding advantages and considerations.
2

10

Under this scenario, the value of the option increases by

$0.0614 to $1.9514, realizing a prot of $6.14. Note that
for a delta neutral portfolio, whereby the trader had also
sold 44 shares of XYZ stock as a hedge, the net loss under
the same scenario would be ($15.86).

8.2

Pin risk

Main article: Pin risk

A special situation called pin risk can arise when the underlying closes at or very close to the options strike value
on the last day the option is traded prior to expiration.
The option writer (seller) may not know with certainty
whether or not the option will actually be exercised or be
allowed to expire. Therefore, the option writer may end
up with a large, unwanted residual position in the underlying when the markets open on the next trading day after
expiration, regardless of his or her best eorts to avoid
such a residual.

8.3

Counterparty risk

REFERENCES

10 References
[1] Abraham, Stephan (May 13, 2010). History of Financial
Options - Investopedia. Investopedia. Retrieved Jun 2,
2014.
[2] Mattias Sander. Bondessons Representation of the Variance Gamma Model and Monte Carlo Option Pricing.
Lunds Tekniska Hgskola 2008
[3] Aristotle. Politics.
[4] Smith, B. Mark (2003), History of the Global Stock Market from Ancient Rome to Silicon Valley, University of
Chicago Press, p. 20, ISBN 0-226-76404-4
[5] Brealey, Richard A.; Myers, Stewart (2003), Principles of
Corporate Finance (7th ed.), McGraw-Hill, Chapter 20
[6] Hull, John C. (2005), Options, Futures and Other Derivatives (excerpt by Fan Zhang) (6th ed.), Pg 6: Prentice-Hall,
ISBN 0-13-149908-4
[7] Characteristics and Risks of Standardized Options (PDF),
Options Clearing Corporation, retrieved June 21, 2007
[8] Trade CME Products, Chicago Mercantile Exchange, retrieved June 21, 2007
[9] ISE Traded Products, International Securities Exchange,

archived from the original on May 11, 2007, retrieved

A further, often ignored, risk in derivatives such as opJune 21, 2007
tions is counterparty risk. In an option contract this risk
is that the seller won't sell or buy the underlying asset as [10] Elinor Mills (December 12, 2006), Google unveils unagreed. The risk can be minimized by using a nancially
orthodox stock option auction, CNet, retrieved June 19,
strong intermediary able to make good on the trade, but
2007
in a major panic or crash the number of defaults can over[11] Harris, Larry (2003), Trading and Exchanges, Oxford
whelm even the strongest intermediaries.
University Press, pp.2627

See also
American Stock Exchange
Chicago Board Options Exchange
Eurex
Euronext.lie
International Securities Exchange
NYSE Arca
Philadelphia Stock Exchange
LEAPS (nance)
Real options analysis
PnL Explained
Pin risk (options)

[12] invest-faq or Law & Valuation for typical size of option

contract
[13] Understanding Stock Options (PDF). The Options
Clearing Corporation and CBOE. Retrieved 27 August
2015.
[14] Lawrence G. McMillan (15 February 2011). McMillan
on Options. John Wiley & Sons. pp. 575. ISBN 978-1118-04588-6.
[15] Fabozzi, Frank J. (2002), The Handbook of Financial Instruments (Page. 471) (1st ed.), New Jersey: John Wiley
and Sons Inc, ISBN 0-471-22092-2
[16] Benhamou, Eric. Options pre-Black Scholes (PDF).
[17] Black, Fischer; Scholes, Myron (1973). The Pricing of
Options and Corporate Liabilities. Journal of Political
Economy 81 (3): 637654. doi:10.1086/260062. JSTOR
1831029.
[18] Reilly, Frank K.; Brown, Keith C. (2003), Investment
Analysis and Portfolio Management (7th ed.), Thomson
Southwestern, Chapter 23
[19] Black, Fischer and Myron S. Scholes. The Pricing of Options and Corporate Liabilities, Journal of Political Economy, 81 (3), 637654 (1973).

[20] Das, Satyajit (2006), Traders, Guns & Money: Knowns

and unknowns in the dazzling world of derivatives (6th
ed.), London: Prentice-Hall, Chapter 1 'Financial WMDs
derivatives demagoguery,' p.22, ISBN 978-0-27370474-4
[21] Hull, John C. (2005), Options, Futures and Other Derivatives (6th ed.), Prentice-Hall, ISBN 0-13-149908-4
[22] Jim Gatheral (2006), The Volatility Surface, A Practitioners Guide, Wiley Finance, ISBN 978-0-471-79251-2
[23] Cox JC, Ross SA and Rubinstein M. 1979. Options pricing: a simplied approach, Journal of Financial Economics, 7:229263.
[24] Cox, John C.; Rubinstein, Mark (1985), Options Markets,
Prentice-Hall, Chapter 5
[25] Crack, Timothy Falcon (2004), Basic BlackScholes: Option Pricing and Trading (1st ed.), pp. 91102, ISBN 09700552-2-6

11

Further reading

Fischer Black and Myron S. Scholes. The Pricing of Options and Corporate Liabilities, Journal
of Political Economy, 81 (3), 637654 (1973).
Feldman, Barry and Dhuv Roy. Passive OptionsBased Investment Strategies: The Case of the
CBOE S&P 500 BuyWrite Index. The Journal of
Investing, (Summer 2005).
Kleinert, Hagen, Path Integrals in Quantum Mechanics, Statistics, Polymer Physics, and Financial
Markets, 4th edition, World Scientic (Singapore,
2004); Paperback ISBN 981-238-107-4 (also available online: PDF-les)
Hill, Joanne, Venkatesh Balasubramanian, Krag
(Buzz) Gregory, and Ingrid Tierens. Finding Alpha via Covered Index Writing. Financial Analysts
Journal. (Sept.-Oct. 2006). pp. 2946.
Millman, Gregory J. (2008), Futures and Options
Markets, in David R. Henderson (ed.), Concise
Encyclopedia of Economics (2nd ed.), Indianapolis: Library of Economics and Liberty, ISBN 9780865976658, OCLC 237794267
Moran, Matthew. Risk-adjusted Performance for
Derivatives-based Indexes Tools to Help Stabilize
Returns. The Journal of Indexes. (Fourth Quarter,
2002) pp. 34 40.
Reilly, Frank and Keith C. Brown, Investment
Analysis and Portfolio Management, 7th edition,
Thompson Southwestern, 2003, pp. 9945.
Schneeweis, Thomas, and Richard Spurgin. The
Benets of Index Option-Based Strategies for Institutional Portfolios The Journal of Alternative Investments, (Spring 2001), pp. 44 52.

Whaley, Robert. Risk and Return of the CBOE

BuyWrite Monthly Index The Journal of Derivatives, (Winter 2002), pp. 35 42.
Bloss, Michael; Ernst, Dietmar; Hcker Joachim
(2008): Derivatives An authoritative guide to
derivatives for nancial intermediaries and investors
Oldenbourg Verlag Mnchen ISBN 978-3-48658632-9
Espen Gaarder Haug & Nassim Nicholas Taleb
(2008): Why We Have Never Used the Black
ScholesMerton Option Pricing Formula

10

12

12
12.1

TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES

Text and image sources, contributors, and licenses

Text

Option (nance) Source: https://en.wikipedia.org/wiki/Option_(finance)?oldid=698847456 Contributors: Bryan Derksen, Roadrunner,

Lisiate, Edward, Michael Hardy, Kwertii, Liftarn, Pcb21, Tregoweth, Mydogategodshat, DanTilkin, Itai, Taxman, Tempshill, Jni, Robbot,
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Citation bot, DannyAsher, LilHelpa, Xqbot, Day000Walker, Srich32977, Khaderv, Papercutbiology, RibotBOT, Satellite9876, Jayandsquids, Khandelwala1, Agbr~enwiki, Mfwitten, Citation bot 1, Skyerise, Keenwords, RedBot, Hessamnia, Sudfa, KBello, Kirt Christensen,
Toasterpastery, Sargdub, Ivj0915, EmausBot, John of Reading, WikitanvirBot, Swerfvalk, Dfdferer22, Drusus 0, NicatronTg, Caotuni,
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12.2

Images

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12.3

Content license

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