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Capital Markets, Derivatives, and the LawPositivity and Preparation$
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Alan N. Rechtschaffen

Print publication date: 2019

Print ISBN-13: 9780190879631

Published to Oxford Scholarship Online: May 2019

DOI: 10.1093/oso/9780190879631.001.0001

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Chapter:
(p.231) 13 Options
Source:
Capital Markets, Derivatives, and the Law
Author(s):

Alan N. Rechtschaffen

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190879631.003.0013

An option is a derivative that derives its value from another underlying asset, instrument, or index. Options “transfer the right but not the obligation to buy or sell the underlying asset, instrument or index on or before the option's exercise date at a specified price (the strike price).” A contract that gives a purchaser such a right is inherently an option even if it called something else. Options can trade over the counter or on an exchange. Regulatory jurisdiction will be defined by the underlying asset negotiated under the terms of the option, by the location where the options are traded, and by the counterparties to an option transaction. This chapter discusses the characteristics of options, how options work, the Black-Scholes model and option pricing, delta hedging, and option strategies.

Keywords:   options, derivatives, Black-Scholes model, option pricing, delta hedging

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