ECON 310 Lecture Notes - Lecture 7: Credit Risk, Futures Exchange, Dow Jones Industrial Average
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Interest rates rising, as that forces bond prices up. A buy the underlying asset at a predetermined price before its expiration date: sell the underlying asset asset at a predetermined price during a set period of time. What is the reasoning behind this observation: volatility is an important part of the black-scholes options pricing model. All else being equal, the lower the volatility in the price of the underlying asset, the larger the option premium, and thus cheaper the option: volatility is an important part of the black-scholes options pricing model. If the price of facebook stock decreased from the current market price, traders would exercise the put options, selling facebook stock for more than the then market price. Traders would make money using this strategy if the price of the unexercised options was less than the spread between the future and current market prices: suppose that the dow jones industrial average is above the 13,000 level.
