X, will not be received until the expiration date. At time t = 0, the upper boundarycondition can be expressed for American and European put options, respectively, as:xPo sX and Po s T(I+RFR)The minimum and maximum boundary conditions for the various types of options atany time tare summarized in Figure 4.Figure 4: Option Value LimitsOpli.n Minimum Va"'t MlIXimum VIII"tEuropean call e, American call C, European pu, P, American PUt P, ~ Proft11ori Nou: Th« "alutf in 1M tablt art tht IMorakallimitl on th« "alut Df~ option>.In Iht nal section, _ will tflablilh mort mtriai"t limiu for oplionpriCll.LOS 60.k: Calculate and interpret the lowest prices of European and Americancalls and puts based on the rules for minimum values and lower bounds.CFA" PrDgramCurrirulum. Volumt 6. pagt J28Proftuori Not« TM option bou"",, ronailionl thllt _ diuull btlow will btimponant whm you study option priring motit". For now. ifyou flibJw thtlogic /tllding up to th« multi pm",,,d in Piprt 5. you will bt p"partd to d.IIIwith tMu LOS. Knowing ana undtntanding tht mulls in Fiprt 5latilfi thtrt'luirtmmu ofthtlt LOS: tht following dtrilHJtion of thou rtfulu nltd not btmtmtlrnttl.At this point, we know that for American-style options, which can be immediatelyexercised, the minimum price has to be the option's intrinsic value. For at-the-moneyand out-of-the money options, this minimum is zero, because options cannot havenegative values. Foe in-the-money American options. the minima are simply the intrinsicvalues 5 - X for calls, and X - 5 for puts. If this were not the case, you could buy theoption for less than its intrinsic value and immediately exercise it for a guaranteed profit.50, for American options, we can express the Io_r bound on tht option prirt at any timeI prior to expiration as:C, • mu[O, 5, - XIP, = mu[O, X - 5,1For European options. however, the minima are not so obvious because these optionsarc not exercisable immediately. To determine the lower bounds for European options
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