Formula Question someone, simple, 2011

water2012

Can someone explain how this formula works? It seems like it would be simple, but it's throwing me off.


Max [0, So - X / (1 + r)^t ]



Edited 1 time(s). Last edit at Monday, May 30, 2011 at 01:22PM by True.

amqata

0 means the higher of the 2.
Remember that the minimum value ever for an option is 0 anyway

Bulla564

True Wrote:
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> So the "0," just mean the higher of 0 or the
> result of the formula?


As I understand it, that's exactly what it means. Your answer is the Max of zero and the computed value, whichever is higher.

lc26mizzou

So the "0," just mean the higher of 0 or the result of the formula?

bapswarrior

What you wanna know? That's the minimum bound for a european call option, witch is the higher of 0 and (Share Price less the discounted strike...

Basically just remember that the lower boundary for an american/european call is above the intrinsic value, as any option with significant time until maturity will have a time value... that should be enough for most of the questions I have seen so far regarding that.