Page 77 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Derivatives & Risk Management

Notes Put Option: A put option gives the holder the right but not the obligation to sell an asset by a
certain date for a certain price.

6.8 Review Questions

1. What do you mean by options and option market? Discuss with suitable examples.
2. Discuss in detail the historical background and uses of option market.
3. Discuss the difference between futures and option contract with suitable examples.
4. Write a detailed note on the important terms and trading mechanism of option market.
5. Distinguish between American Options and European Options.

6. List and explain the role of market players in option trading.
7. "Options contracts are relatively more safe derivative instruments". Explain this statement.
8. Illustrate 'in-the-money' and 'out-of-the-money' positions in both call option and put
option.
9. Write short notes on:
(a) Option Premium

(b) Vanilla Options
(c) Real Options
10. What do you understand by option value? Discuss the concept of time value and intrinsic
value.
Answers: Self Assessment

1. Option price 2. American
3. European 4. Time value
5. Strike price 6. False
7. False 8. True

9. True 10. True
11. Index derivatives 12. Cash
13. European 14. Delivery
15. Asian 16. Lookback

6.9 Further Readings

Books Apte, P.G., International Financial Management, Tata McGraw-Hill Publishing

Avadhani,V.A. : Securities Analysis and Portfolio Management.
Avadhani,V.A. : Capital Market Management.
Avadhani,V.A. : Investments and Securities Markets in India.

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