Lecture 23 - Options Markets

author: Robert J. Shiller, Department of Economics, Yale University
recorded by: Yale University
published: Oct. 7, 2009,   recorded: March 2008,   views: 9110
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)
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Description

Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options exchanges and futures exchanges both are involved in creating a liquid and transparent market for options. Options are not just for stocks; they are also important for other asset classes, such as real estate.

Reading assignment:

Fabozzi et al. Foundations of Financial Markets and Institutions, chapters 27, 28 (pp. 574-588), 29, 30 and 31

Resources:

PowerPoint slides from screen - Lecture 23[PDF]

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