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Chapter 16
1 C. Hull 2013
Fundamentals of Futures and Options Markets, 8th Ed, Ch 16, Copyright John
Options on Futures
Referred
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The Payoffs
If the futures position is closed out
immediately:
Payoff from call = F K
Payoff from put = K F
where F is futures price at time of exercise
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Other Relations
F0 e-rT K < C P < F0 Ke-rT
c > (F0 K)e-rT
p > (F0 K)e-rT
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portfolio that is
long 0.8 futures
short 1
option
is worth 1.592
The value of the futures is zero
The value of the option must
therefore be 1.592
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F0
F0u
u
F0d
d
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Generalization
(continued)
u f d
F0 u F0 d
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Generalization
(continued)
Value
Value
of portfolio today is
Hence
= [F0u
F0 u]e-rT
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Generalization
(continued)
Substituting
for we obtain
= [ p u + (1 p )d ]erT
where
1 d
p
ud
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Blacks Model
(Equations 16.7 and 16.8, page 358)
p e rT K N ( d 2 ) F0 N ( d1 )
where d1
d2
ln( F0 / K ) 2T / 2
T
ln( F0 / K ) 2T / 2
T
d1 T
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F0 N (d1 ) KN (d 2 )
The futures price for a put futures-style option is
KN (d 2 ) F0 N (d1 )
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rT
p S0e
r f T
Futures :
c Ke rT p F0 e rT
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For
futures, q = r
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