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RESEARCH PRODUCT

OPTION VALUE CALCULATION AFFECTED COMPONENTS

subject

description

As the subprime credit crisis has attracted attention to financial derivative instruments, more frequently arises questions about fairvalue calculations. Over the time, different models had been introduced. All of those models take into account factors affectingprices. Mostly, factors used in calculations on the same type of financial instruments are approximately the same. Therefore questionarises, which factor affects price more and which less, with no matter which model would be used for fair value calculations. One offinancial derivative instrument types is options. Options are agreements, which give to option buyer rights to buy or sell underlyingasset. While the seller or writer of option has obligation to buy or sell underlying asset. This research aims to explore the impact offactors on option fair value calculations and evaluate most important ones from those, which could be chosen by option buyer orseller. To reach the aim of research following tasks are developed: 1) review of fair value calculation models; 2) compare results ofusage of different models and changes in affecting factors; 3) highlight differences between option price affecting factors, modelsused in calculations and results provided. Research includes literature review and analysis of option pricing results. Option pricecalculations are based on historical option prices, using black-Scholes and Binomial option pricing models. KEYWORDS: options, fair value models, strike price, exercise date. DOI:  http://dx.doi.org/ 10.15181/rfds.v11i3.617