Essay specific features
June 27, 2013
No of pages / words:
2 / 355
Rating of current essay:
Valuation of options is affected by demand and supply, but other factors are also vital in pricing i.e. the price of the underlying asset and time to expiration. There are also theoretical models of option pricing, i.e. the Black-Scholes model.
By using options one can reduce (or increase) risk. Risk can be reduced by buying the right to sell the asset at a given price (if the price drops), this is called downside risk...
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Risk can be reduced by buying the right to sell the asset at a given price (if the price drops), this is called downside risk.
In the energy sector there is historically high volatility when it comes to oil price. With use of options, a seller of crude oil can lock the price at an adequate level and still sell the oil for a higher price since the options doesn't obliged to sell at a given price, i...
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