5.07.2005

Q&A: How does buying a put option effect...

...the return distribution of a stock, which is a bell shaped curve?

A: Truncates the leftside of the curve and moves the whole bell curve to the left.

  • Buy a protective put option protects you from severe drops in the value, so truncates the leftside of the curve
  • The curve moves to the left by the amount of the premium you paid for such protect (i.e., the price of the put option).

Category: C++ Quant > Derivatives > Options > Valuation

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