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Option Pricing Curve |
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Option Pricing CurveA graphical representation of the projected price of an option at a fixed point in time. It reflects the amount of time value premium in the option for various stock prices, as well. The curve is generated by using a mathematical model. The delta (or hedge ratio) is the slope of a tangent line to the curve at a fixed stock price. See also Delta and Hedge RatioOption Pricing Curve Similar MatchesCapital asset pricing modelCapital asset pricing modelA model for generating expected equity returns. It is based on the premise that returns are the reward for taking on risk, and that risk can be split into two types: stock-specific risk and market risk.Since stock-specific risk can be mitigated by diversification policies, investors should not be compensated for taking this on. Expected returns should only be a function of the share's response to returns on the market as a whole, which is given by the share's beta. Pricing efficiencyPricing efficiencyAlso called external efficiency; a market characteristic that prices at all times fully reflect all available information that is relevant to the valuation of securities. UnderpricingUnderpricingIssuing securities at less than their market value. Two state option pricing modelTwo state option pricing modelA pricing equation allowing an underlying asset to assume only two possible (discrete) values in the next time period for each value it can take on in the preceding time period. Also called the underlying asset. RepricingRepricingTo change the price of an asset. In derivatives, it sometimes refers to the exchange of options of with different strike prices. Further SuggestionsCapital asset pricing model (CAPM)forward pricing Regulatory pricing risk Indication pricing schedule Administrative pricing rules Asset pricing model Forward pricing Garman Kohlhagen option pricing model Pricing to market Arbitrage free option pricing models Transfer pricing Binomial option pricing model International Asset Pricing Model (IAPM) |
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