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The time-weighted return of a particular security, from initial purchase to eventual final sale, is the same, regardless of the presence or absence of interim purchases and sales, their timing, size and the prevailing market conditions. It always matches the share price performance (including dividends, etc.).
For example, suppose a put option with a strike price of $100 for ABC stock is sold at $1.00 and a put option for ABC with a strike price of $90 is purchased for $0.50, and at the option's expiration the price of the stock or index is greater than the short put strike price of $100, then the return generated for this position is:
The theoretical valuation of owning the option versus outright owning all the stocks in the index. It considers the option price, dividends paid on the underlying stocks in the index, days to the expiration of the option (next end-of-quarter), and current interest rates. [1]
As above, the PDE is expressed in a discretized form, using finite differences, and the evolution in the option price is then modelled using a lattice with corresponding dimensions: time runs from 0 to maturity; and price runs from 0 to a "high" value, such that the option is deeply in or out of the money. The option is then valued as follows: [5]
If the stock closes below the strike price at option expiration, the trader must buy it at the strike price. Example : Stock X is trading for $20 per share, and a put with a strike price of $20 ...
Here the price of the option is its discounted expected value; see risk neutrality and rational pricing. The technique applied then, is (1) to generate a large number of possible, but random, price paths for the underlying (or underlyings) via simulation, and (2) to then calculate the associated exercise value (i.e. "payoff") of the option for ...