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发表于 2010-4-22 11:02 | 只看该作者

Reading 60: Option Markets and Contracts-LOS j 习题精选

style, center, identify, contrast, 2010
Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 60: Option Markets and Contracts

LOS j: Compare and contrast American options on forwards and futures with European options on forwards and futures, and identify the appropriate pricing model for European options.

 

 

 

Early exercise of in-the-money American options on:

A)
 futures is sometimes worthwhile but never is for options on forwards.
B)
 both futures and forwards is sometimes worthwhile.
C)
 forwards is sometimes worthwhile but never is for options on futures.


 

Early exercise of in-the-money American options on futures is sometimes worthwhile because the immediate mark to market upon exercise will generate funds that can earn interest. It is never worthwhile for options on forwards because no funds are generated until the settlement date of the forward contract.

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土豆妮

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2#
发表于 2010-4-22 11:02 | 只看该作者

Regarding deep in-the-money options on futures, it is:

A)
 sometimes worthwhile to exercise calls early but not puts.
B)
 never worthwhile to exercise puts or calls early.
C)
 sometimes worthwhile to exercise both calls and puts early.


If puts or calls on futures are significantly in-the-money it may be worthwhile to exercise them early to generate the cash from the immediate mark to market of the futures contract when the option is exercised.

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土豆妮

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3#
发表于 2010-4-22 11:02 | 只看该作者

Regarding deep in-the-money options on forwards, it is:

A)
 never worthwhile to exercise puts or calls early.
B)
 sometimes worthwhile to exercise calls early but not puts.
C)
 sometimes worthwhile to exercise both calls and puts early.


Unlike futures, forwards do not generate any cash at exercise even when they are deep in-the-money so there is no advantage to early exercise.

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土豆妮

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4#
发表于 2010-4-22 11:03 | 只看该作者

Which of the following statements is most accurate?

A)
 American options on forwards are more valuable than comparable European options on forwards.
B)
 American options on futures are more valuable than comparable European options on futures.
C)
 European options on futures are more valuable than comparable American options on futures.


Because of the mark-to-market feature of futures contracts, American options on futures are more valuable than comparable European options. The value of American and European options on forwards are the same.

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