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vikramreddy14
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Time Value in European Option

April 9th, 2007, 6:10 am

what is the relation between between the price of a European Call Option and Intrinsic Value?...is it like American option where the price of an option cannot be less than intrinsic value (i.e. Time value is always positive ) ?In Variance Gamma from FFT, what conditions ( in sigma , theta , nu ) will simulate price of a european option less than its intrinsic value?
Last edited by vikramreddy14 on April 8th, 2007, 10:00 pm, edited 1 time in total.
 
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quantmeh
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Time Value in European Option

April 9th, 2007, 9:46 am

QuoteOriginally posted by: vikramreddy14what is the relation between between the price of a European Call Option and Intrinsic Value?...is it like American option where the price of an option cannot be less than intrinsic value (i.e. Time value is always positive ) ?do u men boundary conditions? >=max(S0-K exp(-Rf T),0), not intrinsic value yet before maturity
 
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vikramreddy14
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Time Value in European Option

April 9th, 2007, 11:07 am

well one can in a way describe them as boundary condition..... well i will change my question into a different one...in the array of Prices against Strikes , obtained after the FFT process in a Variance gamma model , are the strikes on the X - axis 'K' or should they be 'K*exp(-Rf*T)'
Last edited by vikramreddy14 on April 8th, 2007, 10:00 pm, edited 1 time in total.
 
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Time Value in European Option

April 9th, 2007, 9:33 pm

I also wrote shortly about this in my blog
 
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vikramreddy14
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Time Value in European Option

April 10th, 2007, 4:45 pm

thank you guys...that helps a lot