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Options Valuation Exercises
![](https://img-cdn.financeunlocked.com/tr:w-112,h-112,fo-auto/users/4645e18afd1d6fdd8a1773e45c548641f9159b14/Lindsey_Matthews.jpg?ik-sdk-version=javascript-1.0.3)
Lindsey Matthews
30 years: Risk management & derivatives trading
In this video, Lindsey explains the application of the simple valuation model to value 4 options
In this video, Lindsey explains the application of the simple valuation model to value 4 options
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![](https://img-cdn.financeunlocked.com/videos/51c6374bec0ee9b88a8148569a5d059d6876f7f4/Options_Valuation_Exercises.png?ik-sdk-version=javascript-1.0.3)
Options Valuation Exercises
3 mins 53 secs
Key learning objectives:
Apply the simple valuation model to value 4 options
Overview:
To establish the model distribution you require the forward price and the volatility. The forward price is $1,000 and the 3-month volatility is 5%. What is the value of the $1,000 call? What is the value of the $1,000 put? What is the value of the $1,025 call? What is the value of the $1,025 put?
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What is the value of the $1,000 call?
First, calculate the payoff at expiry. Only the $1,050 and $1,100 bars are in the money, with $50 and $100 payoffs respectively.
Second, calculate the value at expiry by multiplying by its probability, which results in a value of $8.33 for both bars in the money, resulting in an overall value of $16.66.
![](https://img-cdn.financeunlocked.com/videos/0481417cd5349a90e345abde93ffebccea61817c/.png?ik-sdk-version=javascript-1.0.3)
What is the value of the $1,000 put?
First, calculate the payoff at expiry. Only the $900 and $950 bars are in the money, with $100 and $50 payoffs respectively.
Second, calculate the value at expiry by multiplying by its probability, which results in a value of $8.33 for both bars in the money, resulting in an overall value of $16.33.
![](https://img-cdn.financeunlocked.com/videos/0481417cd5349a90e345abde93ffebccea61817c/.png?ik-sdk-version=javascript-1.0.3)
What is the value of the $1,025 call?
First, calculate the payoff at expiry. Both the $1,050 and $1,100 bars are in the money and have a $25 and $75 payoff respectively.
Second, calculate the value at expiry by multiplying by its probability, which results in a value of $4.16 for the $1,050 bar and $6.25 for the $1,100 bar, resulting in an overall value of $10.41.
![](https://img-cdn.financeunlocked.com/videos/0481417cd5349a90e345abde93ffebccea61817c/.png?ik-sdk-version=javascript-1.0.3)
What is the value of the $1,025 put?
First, calculate the payoff expiry. Both the $900, $950, and the $1,000 bars are in the money, with $125, $75 and $25 payoffs respectively.
Second, calculate the value at expiry by multiplying by its probability, which results in a value of $10.41, $12.50 and $12.50 at each point respectively, resulting in an overall value of $35.41.
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