The binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and Rubinstein (1979). Essentially, the model uses a "discrete-time" model of the varying price over time of the underlying financial instrument.An options valuation method developed by Cox, et al, in 1979. The … [Read more...]
Bermuda Option:An Overview
A Bermudan option is an option where the buyer has the right to exercise at a set (always discretely spaced) number of times. This is intermediate between a European option—which allows exercise at a single time, namely expiry—and an American option, which allows exercise at any time . For example a typical Bermudan swaption might confer the opportunity to enter into an … [Read more...]
Bilateral Netting: Explained
What is Bilateral Netting? Bilateral netting is a legally enforceable arrangement between a bank and a counterparty that creates a single legal obligation covering all included individual contracts.The process of consolidating swap agreements between two parties into a single agreement. This means that a bank’s obligation, in the event of the default or insolvency of one of … [Read more...]
Put/Call Ratio: Meaning and Usage
The put/call ratio is a popular sentiment indicator based upon the trading volumes of put options compared to call options. The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market. Each day the CBOE calculates the ratio below: Volume of put option contracts / Volume of call option contracts On days when the major averages perform … [Read more...]
In -The -Money :Option Trading
In the Money is a situation when your stock option is worth money and you can turn around and sell or exercise it for a profit. The strike price of an option compared to the current stock price is what determines the option's Intrinsic Value and hence determines whether the option is in, at or out of the money. If a call option's strike price is less than the current market … [Read more...]