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Issue:

Business

 

Written by:

Cassie T

 

Date added:

October 19, 2013

 

Level:

 

Grade:

A

 

No of pages / words:

43 / 11933

 

Was viewed:

6167 times

 

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Essay content:

Just like in other free markets, it is the supply and demand in the secondary market that drives the price of an option. On dates prior to 31 Dec 2000, the "call option on Nifty expiring on 31 Dec 2000 with a strike of 1500" will trade at a price that purely reflects supply and demand. There is a separate order book for each option which generates its own price...
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There is a separate order book for each option which generates its own price. The values shown in Table 7.1 are derived from a theoretical model, namely the Black-Scholes option pricing model. If the secondary market prices deviate from these values, it would imply the presence of arbitrage opportunities, which (we might expect) would be swiftly exploited...
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