Valuation of options is based on the price of the underlying, not the strike. Value of an option can be deduced from the value of its out-of-the-money option. The key relationship between options is something we used to use all day every day on the trading floor. It is a key relationship which junior traders were taught all day, every day. It can be used by investors to help them in valuation, risk management and pricing. It will require some kind of option pricing model, but there are some key parts that do not require it.
Key learning objectives:
How are Options Valued?
What is Long Protection?
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Introduction to Interest Rate Swaps and Use Cases
David Leeming • 17:58