An option price is the sum of two parts:
the value of the option if it is exercised (the intrinsic value) and the
fee paid for the option’s potential benefits (the time value of the option).
At
a given price of the underlying asset and time to expiration, the higher the
strike price of a call option, the lower its intrinsic value and the less
expensive the option.
At a given price of the underlying asset and time to
expiration, the higher the strike price of a put option, the higher the
intrinsic value and the more expensive the option.
The
closer the strike price is to the current price of the underlying asset, the
larger the option’s time value.
Deep "in-the-money" options have lower time value. Because
such an option is very likely to expire "in the money," buying one is like
buying the underlying asset itself.
The longer the time to expiration at a given strike price,
the higher the option price.
depreciation
appreciation
relationship to net exportsk
Whenever
the real exchange rate is greater than one (the real exchange rate has no
units), foreign products will seem _________.
Even
with its obvious flaws the law of one price is extremely useful in explaining
the behavior of exchange rates over long periods, like ten or twenty years.
PPP implies that the real exchange rate is always equal to
one.
Factors that shift supply
Factors that shift demand
The Trillion Dollar Bet and Inside the Meltdown:
A look at the recent monetary history in the United States
We should start with the jargon and the players.
Black Scholes formula
Louis Bachelier
Paul Samuelsson
Myron Scholes
Fischer Black
Robert Merton
Call Option
Put Option
Strike Price
Premium
Hedging
Dynamic Hedging
Hedge Fund
Long Term Capital Management
Covered Call
Naked Call
in (out) the money
penny stocks
selling short
systemic risk
idiosyncratic risk
toxic assets
Bear Stearns
Lehman Brothers
AIG
Hank Paulson
Ben Bernanke
CDO
MBS
Credit Default Swaps
sub-prime mortgages
Repo market
bubble
moral hazard
asymmetric information
adverse selection
capital injections
quantitative easing
Fannie Mae and Freddie Mac
Planet Money
What is the fundamental difference between "capitalism" and the claims about investing with the Black-Scholes equation?
In your opinion, when does using the derivatives market cross over from hedging or clearing the market into pure gambling? Define your terms so we are both clear on your answer.
Based on your interpretations of the videos, would you describe the situations at LTCM and Bear as an example of a violation of ethical corporate practice?
Are any financial companies too big to fail? Why?
What are your suggestions to mitigate the moral hazard problem?
What are the strengths and weaknesses of Professor Stutes's evaluation of the house market crash? Wednesday's Class.
The video describes investment banks utilizing the repo market on a daily basis as market tool to evaluate the soundness of the institutions. Does the repo market fulfill this goal? Does the repo market in this context improve efficiency in the financial sector? Be sure to define your jargon.
The Federal Reserve was created after the meltdown of the economy in the late 19th century and the early 20th century. It is often assume the only responsibility of the Fed is to provide security in the banking sector, but Congress has mandated the Fed to promote a strong US economy through maximum sustainable employment, stable prices, and moderate long-term interest rates. How would you grade the Fed on these goal for the past 10 years and on the 10-years before.
The Meltdown video insinuated that a rumor could cause an investment bank to fail. This is strong power in our press and can potentially cause world-wide implications. Should the government be involved in this issue? Why or why not?