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by torontosimpleguy
July 16th, 2004, 6:39 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

<t>Quotedaveangel:the ability of options to increase risk as well. Not everyone is a hedger.I don't understand why this is the fundamental feature. All risky instruments expose you to the risk.Let's go through your examples (if I understood them right).The first one shows the difference how two side...
by torontosimpleguy
July 16th, 2004, 5:40 pm
Forum: Student Forum
Topic: Why expectations exceed drift by 0.5 sigma squared?
Replies: 10
Views: 182045

Why expectations exceed drift by 0.5 sigma squared?

<t>exotiq,Thanks a lot.Unfortunately I don't have textbook around to look at expectation of the exponential of a normal Regarding to your second explanation... Do I understand it right?This offset is actually the compensation for exponetial of positively large values, exp (+ oo), since exponetial of...
by torontosimpleguy
July 16th, 2004, 1:12 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

<t>Quotedaveangel:As a matter of fact, I dont..I have never traded an option because I thought I was going to generate risk free returns.I just want to say that the most distinctive feature of the options is their ability to eliminate risk from the underlying risky assets.It's something similar to y...
by torontosimpleguy
July 15th, 2004, 8:52 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

<t>Quotedaveangel:Imagine a stock is trading at 100 and over an infinitesimal time step it is going to be worth either 200 or 50 . WHat is the price of the 100 strike call with a time to expiry equal to the infinitesimal time step ? In infinite-small time step it's impossible (in boundaries of surro...
by torontosimpleguy
July 15th, 2004, 8:33 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

<t>Quotedaveangel:You can have all the time in the world but in the absence of volatility your options are not going to be worth anything (ignoring cost of carry). I have not said that volatility is not important. I only said that time is the primary parameter.If time -> zero, than option value beco...
by torontosimpleguy
July 15th, 2004, 7:48 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

<t>QuoteAaron:Therefore, if we're thinking of the most important property that separates options from other financial instruments, it wouldn't be time. - What's the most distinctive feature of the options?- The most striking feature of the options is their ability to create a risk-free portfolio on ...
by torontosimpleguy
July 15th, 2004, 6:56 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

QuoteIndeed, you need both tenor and volatility for it to be uncertainYes. But it eventually comes to time since volatility doesn't exist outside of time. This is why the time to maturity is the primary parameter in my opinion.
by torontosimpleguy
July 15th, 2004, 3:03 pm
Forum: Student Forum
Topic: what's the most important property of options
Replies: 27
Views: 184088

what's the most important property of options

- What's the most important property of options?- Time to maturity since it is the only parameter that brings uncertainty into the options value.
by torontosimpleguy
July 14th, 2004, 7:34 pm
Forum: Student Forum
Topic: Why expectations exceed drift by 0.5 sigma squared?
Replies: 10
Views: 182045

Why expectations exceed drift by 0.5 sigma squared?

Obviously it's "the value of half a sigma squared" multiplied by time
by torontosimpleguy
July 14th, 2004, 7:26 pm
Forum: Student Forum
Topic: Why expectations exceed drift by 0.5 sigma squared?
Replies: 10
Views: 182045

Why expectations exceed drift by 0.5 sigma squared?

Hi guys,Could anyone explain the cause of expectation exceeding the drift by the value of half a sigma squared for martingale measure?I suspect that it is the result of Ito's lemma but does anyone master the sense behind pure technicalities?Thanks in advance.
by torontosimpleguy
July 14th, 2004, 5:26 pm
Forum: Student Forum
Topic: Biases of Black-Scholes pricing
Replies: 3
Views: 181684

Biases of Black-Scholes pricing

Hi guys,Does anybody know where I can read about biases produced by using Black-Scholes formula for derivatives' pricing?Thanks.
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