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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 MatchesAsset pricing modelAsset pricing modelA model for determining the required or expected rate of return on an asset. Related: Capital asset pricing model and arbitrage pricing theory. Capital asset pricing model (CAPM)Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the assets systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965). Indication pricing scheduleIndication pricing scheduleA statement of rates for an interest rate or currency swap. RepricingRepricingTo change the price of an asset. In derivatives, it sometimes refers to the exchange of options of with different strike prices. 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. Further Suggestionscapital asset pricing modelRegulatory pricing risk Arbitrage free option pricing models Garman Kohlhagen option pricing model Underpricing International Asset Pricing Model (IAPM) Administrative pricing rules forward pricing Binomial option pricing model Pricing to market Two state option pricing model Transfer pricing Forward pricing |
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