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.

 

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