Pricing and Valuation of Options
Free CFA Level I lesson in Derivatives. 11 min read, ~1,718 words.
Exercise value (intrinsic) = max(0, S−X) for calls, max(0, X−S) for puts. Never negative. Option premium = exercise value + time value. Time value decays to zero at expiration. Moneyness: ITM = positive exercise value, ATM = S ≈ X, OTM = zero exercise value. Six factors drive option value...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- pricing and valuation of options
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