Measurement and recognition of option contracts
13-14/2005 , p51..55
Author(s):
Lidia MANEA
Keywords:
option contracts, financial markets, hedging
Abstract:
Transactions based on options are more and more frequent on the market. Options have two major uses on financial markets, speculation and hedging. This paper will focus on the valuing options. Normally in financial management we would value an investment by calculating the present value of its future receipts at an interest rate reflecting the risks involved. However, in the case of options this approach will not work as the risks involved in holding an option change every time the price of the underlying asset changes. Thus there should be used some valuating methods. Sometimes options are valuable other times they are worthless, but entities should know how to recognize this options.
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