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How to calculate the minimum and maximum value of the option？

幫考網校2020-10-14 08:59:35
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The minimum and maximum value of an option can be calculated using various methods, such as the Black-Scholes model or the binomial model.

In the Black-Scholes model, the minimum value of a call option is zero, as the holder of the option can simply choose not to exercise it if the underlying asset price is lower than the strike price. The maximum value of a call option is theoretically unlimited, as the underlying asset price can increase indefinitely, leading to higher profits for the option holder.

For a put option, the minimum value is the difference between the strike price and the underlying asset price, as the holder of the option can always exercise it to sell the asset at the strike price. The maximum value is the strike price, as the holder cannot sell the asset for a higher price than the strike price.

In the binomial model, the minimum and maximum values of an option can be calculated by simulating the possible price movements of the underlying asset over time. This involves constructing a binomial tree that represents the possible price paths of the asset, and calculating the option value at each node of the tree. The minimum and maximum values of the option can then be determined by examining the option values at the final node of the tree.
幫考網校
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