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6908 Words Apr 26th, 2015 28 Pages
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An Introduction to

Derivatives and
Risk Management
Don M. Chance
Louisiana State University

Robert Brooks
University of Alabama

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Chapter 1

Preface XlII
Iuuoduction

PART I

Options 21

Chapter 2
Chapter 3
Chapter -!
Chapter 5
Chapter 6
Chapter 7

Structure of Options Markets 22
Principles of Option Pricing 54
Option Pricing Models: The Binomial Model 92
Option Pricing Models: The Black-Scholes-Merton Model
Basic Option Strategies 181
Advanced Option Strategies 218

An Introduction
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Chapter 3

Principles of Option Pricing

54

Basic Notation and Terminology 55
Principles of Call Option Pricing 57
Minimum l0lut oj a Call 57
Maximum value oj a Call 59
Value oj a Call at Expiration 59
Effect oj Time to Expiration 60
Effect ofExercise Price 62
Lower Bound oja European Call 65
American Call Versus European Call 67
Early Exercise oJAmerican Calls on
Dividend-Paying Stochs 69
Effict oj Interest Rates

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