Wednesday, October 15, 2014 | 12:30pm - 2:00pm | Room 335, HSBC Business School Building

Abstract

In this paper, I have used simple arbitrage argument to derive a dozen of model-free option price properties. In addition to deriving the Greeks under model-free framework, the results show that first, in contrast to the traditional view, a European call (put) option for a non-dividend-paying asset can also be a European call (put) option for any other non-dividend-paying asset, and every non-dividend-paying asset is also both a European call option and a European put option for any other non-dividend-paying asset. Second, in some cases the time value of the European put option can be negative, and adjust the exercise price of an option can decrease or even erase the time value of the option. I have also used the Arbitrage Theorem under the binomial option pricing model to examine these properties.