Important Notations in Options Formulas
In the tutorial on risk management applications of options, we will look at how various options strategies can be used for managing risk in a company. Before we start let’s review the key notations used in options formulas:
Time 0 refers to the time when an options strategy is initiated
Time T refers to the time the option will expire
T – 0 is the time to expiry
t is the current time
S refers to the spot price. So, S0 is the price at time 0. ST is the price at time T.
X is the exercise or strike price
c is the call price. Small c is for European calls and capital C is for American calls.
p is the put price. Small p is for European puts and capital P is for American puts.
r is the risk-free rate
p is the profit
When we measure profit in an option transaction, we will consider only the final value minus the initial pay out (premium). We will not take into consideration the risk involved or the time value of money.
Data Science in Finance: 9-Book Bundle
Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.
What's Included:
- Getting Started with R
- R Programming for Data Science
- Data Visualization with R
- Financial Time Series Analysis with R
- Quantitative Trading Strategies with R
- Derivatives with R
- Credit Risk Modelling With R
- Python for Data Science
- Machine Learning in Finance using Python
Each book includes PDFs, explanations, instructions, data files, and R code for all examples.
Get the Bundle for $29 (Regular $57)Free Guides - Getting Started with R and Python
Enter your name and email address below and we will email you the guides for R programming and Python.
