56 lines
1.4 KiB
TeX
56 lines
1.4 KiB
TeX
\section{Put Options}
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\definition{}
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A \textit{put option} is an agreement between a buyer (B) and a seller (S): \par
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\begin{contract}[frametitle={Contract: Put Option}]
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B pays S a premium $p$. \par
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In return, S agrees to buy a certain stock $\mathbb{X}$ from S for a fixed \say{strike price} $k$ at a future time $t$,
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if B decides to exercise this contract.
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\end{contract}
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As before, the \textbf{buyer} decides whether or not this contract is put into action. \par
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Also, note that B does not need to own any shares of stock to buy a put option. \par
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He may buy them whenever he wishes.
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\problem{}
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How is a put different from a call? \par
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What is S betting on? What is B betting on?
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\vfill
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\problem{}
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Suppose B paid $100\Rub$ for 300 put contracts on $\mathbb{X}$ at $17\Rub$.\par
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At time the contracts expired, the price of $\mathbb{X}$ was $20\Rub$.\par
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What is B's profit?
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\vfill
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\problem{}
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Plot profit curves for selling a put option, buying a put option,
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and buying a stock directly on the axis below.
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\begin{center}
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\begin{tikzpicture}
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\draw (0,0) -- (10, 0);
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\draw (0,-3) -- (0, 3);
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\node[
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anchor = south,
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rotate = 90
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] at (0,0) {\color{gray}Profit};
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\node[
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anchor = south west,
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] at (0, 0) {\color{gray}Price of $\mathbb{X}$ at $t$};
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\node[anchor = north] at (6, 0) {$k$};
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\filldraw (6, 0) circle (0.5mm);
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\end{tikzpicture}
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\end{center}
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\vfill
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\pagebreak
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