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Binomial tree, BSM, The Greek letters, Option pricing bounds - Coggle…
Binomial tree
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American option
Work backwards to see at each node, is it optimal to early exercise-> compare between the value given by equation & the payoff from early exericse
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A position in a call option is riskier than a position in the stock :question:
Option price= new stock price - old stock price= St - K
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BSM
Early exercise of PA
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Optimal: exercise a put prior to the expiration if the interest earned on the shares sold at the exercise price > time value embedded in the put option's market price
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Early exercise of CA
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On share paying div: Payment of large div => more likely to early exercise so that investor can benefit from the div
Value CE option written on a non-div paying stocks 
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The Greek letters
Gamma hedging
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Delta neutrality provides protection against relatively small stock price moves between rebalancing.
Gamma neutrality provides protection against larger movements in this stock price between hedging rebalancing
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Vega hedging
the rate of change of the value of the portfolio with respect to the volatility of the underlying asset
Creating an option position synthetically is essentially the same task as hedging the opposite option position :question:
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