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Options are particularly difficult to understand. Put and call values are determined by the price of...

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Finance

Options are particularly difficult to understand. Put and callvalues are determined by the price of a stock, and yet you do notneed to own the stock to buy a put or a call on that stock. Inaddition, if you buy a put or a call, you have the right to walkaway from a contract to limit your losses. When you compute theprice of an option, you use two models that are difficult tounderstand and have computations that are particularly challenging.what are some of the challenges you face in this scenario? How doyou overcome them?

Answer & Explanation Solved by verified expert
3.9 Ratings (790 Votes)
Although there are several options to calculate the price of the option or most popularly known as the Theoretical Fair Value of the Option For Instance Expected Gain Approach Price Differential Approach Binomial Model Black Scholes But the latter two are the most commonly known and used for the purpose of calculating the price of the option And also out of these two Binomial also suffers from some of the challenges making it difficult to use Under the binomial model price of the option has been    See Answer
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