Pricing European Options

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Pricing European Call and Put Options for a Stock

Description

This model prices the value of European (fixed exercise date) call and put options for a stock. A call option allows you to buy a share of stock at the strike price (even if its current price is higher). A put option works in reverse; It allows you to sell a share of stock at the strike price if the stock's value drops below the strike price.

The stock has a current value of $25. The exercise date is 1 year in the future and the strike price for the call is $27, while the price for the put is $24. This means that the call option only has value if the stock price goes above $27 and the put option only has value if the stock price drops below $24. The movement of the stock's price is modeled using a History Generator with Geometric Growth, while the value of the Call and Put options are modeled using the Option element.

Additional Information

Keywords

Financial module

Categories

GoldSim Applications, GoldSim Modules, Financial Modeling

Experience Level
Beginner
Contact

GoldSim Technology Group

 

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