Option Pricing
Option pricing refers to the process of determining the value of an option, a financial contract giving the right to buy or sell an asset at a specified price within a set timeframe. Key factors influencing this value include the current price of the asset, the strike price (the agreed price for buying or selling), time until expiration, market volatility (how much the asset price fluctuates), and prevailing interest rates. Pricing models, like the Black-Scholes model, help traders assess the fair value of options in the market, guiding investment decisions.
Additional Insights
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Option pricing refers to how the value of an options contract is determined. An option gives the holder the right, but not the obligation, to buy or sell an asset at a specific price within a certain timeframe. Key factors influencing an option's price include the asset's current price, the strike price (the predetermined price), time until expiration, volatility (how much the asset's price is expected to fluctuate), and interest rates. Tools like the Black-Scholes model are often used to calculate these prices, balancing potential profit against the risks involved in holding the option.