Bounding Option Prices Using Semidefinite Programming SACHIN JAYASWAL Department of Management Sciences University of Waterloo, Canada Project work for MSCI 700 Fall 2007 Semidefinite Programming: Models, Algorithms & Computation Course Instructor DR. M. F. ANJOS
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Bounding Option Prices Using Semidefinite Programming
Bounding Option Prices Using Semidefinite Programming. Sachin Jayaswal Department of Management Sciences University of Waterloo, Canada Project w ork for MSCI 700 Fall 2007 Semidefinite Programming: Models, Algorithms & Computation Course Instructor DR. M. F. ANJOS. Introduction. - PowerPoint PPT Presentation
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Bounding Option Prices Using Semidefinite Programming
SACHIN JAYASWALDepartment of Management Sciences
University of Waterloo, Canada
Project work for
MSCI 700 Fall 2007Semidefinite Programming: Models, Algorithms &
Computation
Course InstructorDR. M. F. ANJOS
Introduction
2
• Call Option: An agreement that gives the holder the right to buy the underlying by a certain date for a certain price.
• European vs. American call option
Definitions
3
• T: Specific time when the underlying can be purchased (Maturity)
• K: Specific price at which the underlying can be purchased (Strike Price)
• St: Price of the underlying (stock) at time t
• r: Risk-free interest rate• α: Expected return on the
underlying• σ: Volatility in the price of the
underlying• C: Price of call option
Call Option Payoff
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Call Option Pricing
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• Call Option Pricing – An interesting and a challenging problem in finance