CFA Level 2 | Derivatives: Valuing an American Call Option (Binomial Option Pricing Model)

Рет қаралды 9,108

Күн бұрын

Visit www.noesis.edu.sg for more info on CFA prep courses in Malaysia, Singapore, or wherever you are.
☕ Like the content? Support this channel by buying me a coffee at www.buymeacoffee.com/riskmaestro
CFA Level 2
Topic: Derivatives
Reading: Valuation of Contingent Claims
When valuing an American call option with dividends, exercising early may be worthwhile.
Before you start off, always calculate the present value of the dividend and subtract it from the initial underlying price.
If the value of early exercise is greater than the call option value, then early exercise of the American call is worthwhile.
Visit www.noesis.edu.sg/programme/cfa for more information on CFA Program prep courses offered by Noesis Exed (Noesis Academy)
Facebook: / noesismy
LinkedIn: / noesisklsg

Пікірлер: 24

@andrewgirouard6378 2 ай бұрын

Taking level 2 today not going to lie for derivatives, fixed income, and complex equity formulas your videos have been the clearest and most effective explanations. These are very helpful I appreciate the videos.

@FabianMoa 2 ай бұрын

Hi Andrew, my comment came a bit late but I hope it went smoothly for your exam. Thank you for the feedback! That keeps me going.

@yyman9100 3 жыл бұрын

Very clear explanation! Good for a quick recap and strengthen understanding after going through the syllabus. Thanks Fabian!

@Soren9w 13 сағат бұрын

In Australian, we study: S0 -> Su -> Su' -> Suu -> Suu' Sud -> Sud' -> Sd -> Sd' -> Sdu -> Sdu' Sdd -> Sdd' Su = S0 x u; Su' = Su - Div1; Suu = Su' x u; Suu' = Suu - Div2 Sud = Su' x d; Sud' = Sud - Div2 Sd = S0 x d; Sd' = Sd - Div1; Sdu = Sd' x d; Sdu' = Sdu - Div2 Sdd = Sd' x d; Sdd' = Sdd - Div2 Not discount anything to Div0 (the present value of dividend). It moves at each period having dividends, that dividend will be deducted from the price of that step after dividend paying.

@sudarshanch3328 3 жыл бұрын

Very good explanation quick review of concept in short time. Thanks Fabian!

@FabianMoa 3 жыл бұрын

Glad it was helpful!

@ArunKumar-yb2jn 3 жыл бұрын

Well explained

@thomaskline6823 2 жыл бұрын

You are a legend ! 👏🏻👏🏻👏🏻👏🏻

@FabianMoa 2 жыл бұрын

Thanks!

@priyankamalhotra3409 2 жыл бұрын

well explained

@kangtoby 3 жыл бұрын

you are my man

@terrrus 8 ай бұрын

For short puts or long calls, h is in the denominator. i.e. for -10000p hedge would be 10000/h , where 10000 is position size

@andreyi3707 3 жыл бұрын

thanks a lot!

@FabianMoa 3 жыл бұрын

You're welcome, Andrey!

@travelwithruo4875 2 жыл бұрын

Why is the $2.60 dividend only added to the call value in period 1 under early exercise of the American call and not under the European call?

@jonahlevy3341 3 жыл бұрын

boss man ting

@beomkomap 2 жыл бұрын

Hi Sir. Nice video. Your hard work is deeply appreciated. By the way, may I know when you say "Exercise early", does it mean we take dividends first before exercising the call option? THanks

@FabianMoa 2 жыл бұрын

You exercise the call option and buy the stock, and receive the dividend

@travelwithruo4875 2 жыл бұрын

Why is the 2.60 dividend only added to the call value under early exercise of the Am call and not under the Eu call?

@FabianMoa 2 жыл бұрын

Because you will receive the dividend only if the option is exercised in that period

@priyankamalhotra3409 2 жыл бұрын

if had this been a put option, would we still subtract the present value of dividend from the starting stock price?

@FabianMoa 2 жыл бұрын

Yes, you would have to do the same but I suspect that if it was a question on American put, they would say that the stock is non-dividend paying

@priyankamalhotra3409 2 жыл бұрын

@@FabianMoa thanks so much! very helpful!

@user-tc1pi8fz2w 5 ай бұрын

We need to check a possibility of early exercise in period 0. max (0, 65-60)=5 or max(0, 62.451-60+2.6/1.02)=5 which is lower than 10.9397. So, no early exercise at t=0