Management and Organizational Studies 1023A/B Chapter 8: Chapter 8

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1023A/B
• Professor: Maria Ferraro

Document Summary

Derivative instruments can be used to speculate in various markets. Most common derivatives us banks involved in are swaps: two investors agree to trade the turn on different assets, banks often use interest rate swaps to protect themselves. Options: claims that give the holder the right, but not obligation, Why we should create indirect claims as alternative way to invest. A) puts and calls expand opportunity set available to investors, making available risk-return combinations that would otherwise. Why options market? be impossible or that improve risk-return characteristics of a portfolio. D) using options on a market index, investor can participate in. Exercise (strike) price: per-share price at which common stock may be purchased from (in case of call) or sold to (in case of put) a writer. Option premium: price paid by option buyer to seller (writer) of option: premium is stated on a per-share basis for options on organized exchanges.