분야
doc2. Binominal Option Pricing Model
1 Definition & Assumption of BOPM
2) Character & Usefulness of BOPM
3. Examples of BOPM
4. Limitation of BOPM
Time value is, as above, the difference between option value and intrinsic value, i.e.
Time Value = Option Value - Intrinsic Value.
More specifically, an option's time value reflects the probability that the option will gain in intrinsic value or become profitable to exercise before it expires. An important factor is the option's volatility. Volatile prices of the underlying instrument can stimulate option demand, enhancing the value. Numerically, this value depends on the time until the expiration date and the volatility of the underlying instrument's price. The time value of an option is not negative (because the option value is never lower than the intrinsic value), and converges towards zero with time. At expiration, where the option value is simply its intrinsic value, time value is zero. Prior to expiration, the change in time value with time is non-linear, being a function of the option price.
Option styles
A. European option - an option that may only be exercised on expiration.
B. American option - an option that may be exercised on any trading day on
