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Two state option pricing model |
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Two 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.Two state option pricing model Similar MatchesBinomial option pricing modelBinomial option pricing modelAn option pricing model in which the option can assume one of only two possible, discrete values in the next time period for each value that it can take on in the preceding time period. International Asset Pricing Model (IAPM)International Asset Pricing Model (IAPM)The international version of the CAPM assuming that investors in each country share the same consumption basket and purchasing power parity holds. 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). Option Pricing CurveOption 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 Ratio Garman Kohlhagen option pricing modelGarman Kohlhagen option pricing modelA model widely used to price foreign currency options. Further SuggestionsArbitrage free option pricing modelsRepricing Administrative pricing rules Forward pricing Pricing efficiency Asset pricing model Pricing to market Regulatory pricing risk Underpricing Indication pricing schedule capital asset pricing model forward pricing Transfer pricing |
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