Ff options can only be priced because they can be replicated, why do we need them? - Assignment Example

Only on StudentShare

Extract of sample
Ff options can only be priced because they can be replicated, why do we need them?

Although derivatives are technically conspicuous reason being they can undergo replication using basic financial instruments, they are still the tools that provide those who participate in the market to full of risk to manage the particular risks. Nature of options dynamic replication Dynamic hedging of options is never conducted even with the market makers(Lussier & PareI, 2004). In nature, options are hard to deal with due to the technicality of the language used to describe the tools. The difference between dynamic and static hedging is small since hedging is only realized on minor positions. The risks taken by either parties are very different and highly distinguished, those with the buyer and distinct from those with the writer of the options hence asymmetry in the payoffs making it very hard for dynamic replication. Options also have the tendency of changing their character in a dynamically replicative way depending on whether they are in the money or out of the money. Dependent on this, is the fact that the value of out of the money option is the probability that at expiry the said option will have some value without dynamically replicating (Lussier & PareI, 2004). Dynamic replication assumes a constant movement of asset prices while the real prices of the assets can move non-constantly. ...Show more


Date If options can only be priced because they can be replicated, why do we need them? Introduction Pricing of options is conducted on myriads of instruments where the achievement of dynamic replicating is closer to impossible…
Author : xwaelchi
Save Your Time for More Important Things
Let us write a custom assignment on your topic
"Ff options can only be priced because they can be replicated, why do we need them?"
with a personal 20% discount.
Find out more

Related Essays

Strategic management accounting
The company aims to meet the needs of the customers by providing them with products that could not only meet today’s needs but also the future needs as well. The company is operating in 31 countries and has a range of diversified customers geographically (Renishaw, 2012a).
11 pages (2750 words) Essay
Use of Real Options Theory in Financial Management/Modeling
Use of Real Options Theory in Financial Management/Modeling It goes further to identify the activities that facilitated my understanding of the real options theory and other practical application matters connected to the real option theory. The Need for the Real Options Theory The Real Options Theory is a finance theory that is increasingly being used by top-level management and people charged with the governance of businesses to take good financial decisions.
8 pages (2000 words) Term Paper
Financing Options for Larger Purchases
The need can be of any kind, it can be a car purchase or a car lease & it may also be a big purchase like house or some other fixed asset. The option can be any financial instrument used to buy or sell something according to a set of rules & obligation defined earlier.
4 pages (1000 words) Essay
Financing Options: "Newbe" Expanding Business
In this letter, I have explained the financing requirements, which I consider crucial for you to understand before making you final decision. I have also presented the various financing options you may consider pursuing together with their advantages and disadvantages.
8 pages (2000 words) Research Paper
Financial systems around the globe
Financial Growth According to the conventional theories of financial intermediation, the intimidation stands on the transaction cost and requires use of full information. They are considered to do work by taking deposits and issue the insurance policy, which is the method to provide finance to a company.
6 pages (1500 words) Essay
Close examination of global financial systems
Then the essay goes through examples, such as pragmatic study on the relative values of bank-based as well as market-based financial systems has focused on “Germany and Japan as bank-based systems and the United States and the United Kingdom as market-based systems” (World Bank, 2012, p. 111).
6 pages (1500 words) Essay
Understanding the work of financial markets
To begin with, essay describes that lenders supply money through the financial markets. Financial markets which consists of the bond markets, equity markets and the money markets. Secondly, through which lenders supply money is through financial intermediaries such as the banks, mutual funds, market funds, pension funds and insurance companies.
10 pages (2500 words) Essay
Required: critically evaluate the following statement: Accounting regulation is at a crossroads : many believe that we need a
GAAP and worldwide standards (IASB 2013, p. 1). Although, most countries around the globe adopted GAAPs as part of their accounting regulations, there were differences on disclosure framework pertaining to certain accounting items. As a result, corporations with global operations experienced problems in consolidating their financial statements (McEwen 2009, p.
5 pages (1250 words) Essay
Besides the initial contributions by the employees who turned to be the proprietors, they managed to formulate policies through which the members continuously contribute to the welfare of expanding and perpetuity of the cooperative. They followed a relatively unclear structure while contributing and deciding on investment plans where the trustees would just come up with suggestions during monthly meetings and decide on what investments to undertake as well as what contributions to be make.
10 pages (2500 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email