ECON 252 (2011) - Lecture 17 - Options Markets

Lecture 17 - Options Markets

Overview

After introducing the core terms and main ideas of options in the beginning of the lecture, Professor Shiller emphasizes two purposes of options, a theoretical and a behavioral purpose. Subsequently, he provides a graphical representation for the value of a call and a put option, and, in this context, addresses the put-call parity for European options. Within the framework of the Binomial Asset Pricing model, he derives the value of a call-option from the no-arbitrage-principle, and, as a continuous-time analogue to this formula, he presents the Black-Scholes Option Pricing formula. He contrasts implied volatility, as represented by the VIX index of the Chicago Board Options Exchange, which uses a different formula in the spirit of Black-Scholes, with the actual S&P Composite volatility from 1986 until 2010. Professor Shiller concludes the lecture with some thoughts about options on single-family homes that he launched with his colleagues of the Chicago Mercantile Exchange in 2006.

Resources

application/pdf iconLecture Slides [PDF]
application/pdf iconMultiple-Choice Quiz (with answer key) [PDF]
application/pdf iconProblem Set 6 [PDF]
application/pdf iconProblem Set 6 Solutions [PDF]

Assignment

Fabozzi, Ch. 27, Options Markets, Ch. 28, pp. 574-86

Course Media

Transcript

html

Audio

mp3

Low Bandwidth Video

mov [100MB]

High Bandwidth Video

mov [500MB]