What is the value of an option?
Professor Tom Lindstrøm, Professor at the Department of Mathematics
Options are financial contracts depending on underlying assets such as stocks. The simplest example is a European Call Option which is of the form:
"The holder of this contract has the right to buy one stock of type A at time T for the price K."
If T is some time into the future and you have an interest in stock A, what should you be willing to pay for such a contract today? We shall study this question in a toy model, but using concepts and techniques that generalize to more sophisticated settings.