İstek Listesi'ne ekle. Vanilla options cover the Black-Scholes valuation for European calls and puts; American options; stochastic volatility; and an implied volatility calculator. Exotic option calculations include prices and Greeks for binary, Asian, barrier, lookback, and more complex derivatives. Graphing functionality allows for visualization of changes in option prices and Greeks. The underlying asset can be a stock paying dividends , equity index, futures, currency, or commodity. The user-friendly interface has easy input and extensive help.
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First referring to the characteristics and specifics of modern options and briefly mentioning the pricing methods, paper then will get into the matter of exotic options especially which would be comparable with the ones in Participation Banking. Considering the rapid growth of Participation Banking in the world we will discuss the needs of options in Islamic Banking and show some cases in which options are used in strategies that have very similar aspects to some conventional exotic options.
Finding few differences, we will compare the uses of options in Conventional Banking and Participation Banking. A u type pipe is a solution in infrastructure, trading goods was a solution to have something that you need in exchange for another and in this sense, money is a solution which helps people to have goods and services without having to pay with goods or services with equal value.
Option also is a solution when people find themselves in certain conditions and needs. Obviously the first condition is to be in need of an option is uncertainty or volatility.
People need to have an option when they do not know what will certainly happen in the time when they make a transaction. Although we all know that the options fundamentals were established in modern world and in the western developed countries, we are wrong and right at the same time.
We are right that today s option contracts and speculative uses of options are indeed founded in modern world but first option were seen in ancient history. In this paper we will discuss how options have come to being, why they were needed in the first place and their uses in the history and eventually in the modern world.
After discussing the specifics and generally briefing the options we will discuss how options are used in Participation Banking and we will see how option-like contracts are used in Islamic Finance.
As a newly establishing aspect in the Participation Banking, we will try to understand the Islamic Options and their feasibility as a commonly used Islamic financial instrument. We will try to illuminate the way that Participation Banking would take if it is to compete in the arena of Financial Options. On the other hand, for the topic of Options in Islamic Finance which many scholars have different opinions on its permissibility with different reasoning for approving and prohibiting such contracts, we try to convey these different opinions unbiased and reveal the cases and uses of options objectively.
Obiyatullah Ismath Bacha s extensive review in helped us in this topic explaining the evolution of modern financial derivatives, the financial instruments from Shari a perspective, some of the Islamic instruments that are the same as derivatives and the objection of Islamic scholars regarding derivatives that might need some rethinking and evaluation.
From Complexity to Simplicity We also benefitted from the objections of Mohammed Obaidullah about Obiyatullah s opinions. While Obaidullah objects options, Ali Salehabadi and Mohamad Aram s work helped us to show the pro side of this argument. El-Gamal s extensive work on Islamic Banking, gave us the cases that we compared and contrast these embedded options with their conventional counterparts that are Barrier and Asian option which are both considered as exotic options.
All in all, in this thesis we will see the descriptions and uses of options and option-like contracts in western countries and Islamic Finance and compare them in the process. These may be debt securities bonds, banknotes etc.
They are available to the public, sold in a form and in standard units. Our concern among these securities is option contracts which are one of the many derivatives. Derivatives are financial instruments whose price is derived from that of an underlying: asset stocks, bonds, precious metals and other raw materials , reference rate exchange rate, interest rates, indices , conducting an event credit event, natural disaster.
Securities transactions, particularly derivatives, involve financial risk. Options, which may consist of several financial instruments, the instruments are sometimes difficult to grasp. This is particularly the case of options called "exotic". This thesis tries to illuminate some of these financial instruments as well as their counterparts in the Islamic Finance.
However it cannot replace the product descriptions published by issuers and securities dealers. Your financial advisor generally your bank is at your disposal for any further information. Basically, it is necessary to distinguish the risky financial instruments and financial instruments limited to unlimited risk.
When you buy shares or options, you take a limited risk. At worst, you lose the capital invested and will not realize capital gains. This obligation to meet margin calls can be several times the purchase price of your securities. Among the unlimited risk operations include in particular: - The sale of a call option without hedging - The sale of a put option or - Forward transactions.
They essentially require the underlying markets and frictionless posing, no restrictions on taking positions on the purchase or sale, and a harmonious integration between different compartments provided by the voluntary participation of all agents.
To put it simply, the effectiveness of international derivatives is not compatible with the existence of controls on the underlying market. This is a fundamental challenge faced by authorities in economies where macroeconomic and structural constraints as well as financial stability considerations require the existence of certain restrictions on the underlying markets. The existence of an underlying exposure continues to be an imperative to conduct transactions on the derivatives exchange.
More important, the tolerance of the real sector in respect of high volatility in exchange rates and interest rates is limited the actions of authorities on the spot markets represent another variable to consider. While the international derivatives do not fit within this framework, regardless of their advantages of an operational standpoint, the instruments in OTC over the counter can continue to develop markets in a gradual manner, taking into account the constraints existing.
In other words is a contract between A buyer and B seller where A acquires the right to buy call option or sell put option an asset, and B acquires the obligation to buy put option or sell call option an asset for a specified price during a period or at a specified date, upon payment of a premium to the buyer to assume the risk in trading.
In an option contract, rights and obligations of the buyer and seller lack of symmetry and the buyer is entitled to exercise the option in a period corresponding to the same. However the seller has the obligation in the sense that they have to sell or buy if the holder of the option chooses to exercise and otherwise does nothing.
The buyers exercise the options when the changing underlying market prices allows them to reap the benefits and options of these utilities, predict losses for the sellers so the risk is assumed by both parties.
Financial options are a group of financial products called "financial derivatives", name given because their behavior is derived from its underlying or product to the consignment stocks, foreign currencies, interest rates, etc.
These financial products resemble those insurance policies in which someone is willing to pay a certain amount of money premium to cover the eventuality that the occurrence of an accident, which is the market risks, in this case.
The ancient pre runners of today's trading floors - the agoras of ancient Greece, the forums of the Roman Empire and the medieval fairs of Western Europe - established basic principles of trading, those, are still important today. That's why the history of options on tangible commodities is a long one. There is evidence of the use of option related contracts in the ancient world, and among the medieval banks and financial institutions of Italy, Germany and other financial centers.
Options on individual stocks were traded on semi-organized exchanges in Holland and the United Kingdom as early as the 17th century. For the reason of the lack of an adequately organized exchange on which trading could take place, and adequate clearing and regulatory systems to ensure the maintenance of an orderly market, and the efficient fulfillment of the option contracts, the history of options trading has been characterized by scandals, defaults, and other criminal activities.
In , a revolutionary step was taken for the options world. The solution for the three above mentioned problem was found by the commencement of stock option trading on the Chicago Board Options Exchange CBOE , and founding of the Options Clearing Corporation to guarantee performance on all stock options contracts traded on US stock exchanges. The exchange began modestly, with trading only in call options on sixteen common stocks, but it soon became a tremendous success.
Exchange traded options markets also developed in Amsterdam, London, Sydney and Toronto. Some outstanding developments innovated after the establishment of organized option exchanges are; a The creation of a central market, place with regulatory surveillance, disclosure, and price dissemination capabilities, b The standardization of expiration dates and the standardization of exercise prices has provide more liquid market, c The creation of a secondary market, so that there is no obligation for holders of options imposing them holding their options until the expiration date.
In practice, the majority of option buyers, sell their options on the exchange either for a profit, or reduce the loss, d The introduction of a Clearing Corporation as the guarantor of every option. Standing as the opposite party for every trade, the Clearing Corporation enables buyers and sellers of options to close their positions in the market at any time by making an offsetting transaction, e The transaction cost of options quoted in exchange list is lower than cost faced in conventional OTC over the counter markets.
It is seen that this fact has got positive effect on transaction volume, f Options Clearing Corporation does not issue certificates. This has been the end of the physical shipment and no doubt has brought efficiency and reduced the costs also. Let us examine the profit and loss profile for buying and selling call option Buying Call Options The purchase of a call option remained the most popular strategy for investors since the existence of options.
This strategy allows an investor to benefit from high leverage and a low initial investment. The investor expects the return on long call position buying call option is on a rise in the price of underlying asset. Experience and precision are the main components to choose the right option to have the most beneficial result. We may also use options as a substitute for action. An investor may buy call options instead of shares it wants to integrate its protection.
He buys a call option, while spending less money than if it buys an equivalent amount of shares. It is useful to remember that option contract equals shares of underlying. Keeping a call option, the investor retains the right to buy shares of the action he has selected at any time predetermined strike price until the contract expires.
Let us illustrate the statement by real numbers. Note: The option holders do not have the same rights as shareholders. No voting rights or dividends. If you have a call option, you must exercise the option and hold the securities to have those rights. Advantage: Less committed capital, high leverage, percentage of high return, risk predetermined. The sale of a call option may be a way to short sell shares at a price above the market price.
Many investors emit call options because they are willing to take short positions in exchange of the It depends on their expectations from underlying assets prices in the market and it also depends on their risk perceptions.
Some investors prefer to sell call options rather than to place sell orders at a limit price above the current market and expect prices to rise. This strategy is slightly neutral to bearish. Short Call Selling Call Options ; this strategy allows the investor to sell shares at a net price above the current market while increasing portfolio returns because of the premium received.
Before you sell call options, the investor must be able to sell the relevant securities if the buyer decides to exercise the options. Thus, it "guarantees" his call options or by a cash deposit or by the amount of short selling the actions. The number of contracts of call options issued should match the number of shares that the investor is able to sell.
This strategy can become speculative when more call options are issued than the equivalent number of shares possessed. It is useful to remember that option contract equals shares of the underlying asset. The issuers of the call option harvest the bounty of the sale, regardless of the ups and downs of the stock price. However, if the option is exercised by the buyer they are then obliged to sell an equivalent amount of shares at an exercise price of the call option issued.
The premium received from the sale will partially offset the cost of selling shares and may result in the sale of shares above the market price. If the stock rises significantly and the option is exercised, the sale price of securities may be below market prices and issuer of the call option may have an unrealized loss due to high price sale of securities.
As a call writer, investor obligates himself to sell, at the strike price, the underlying shares of stock upon being assigned an exercise notice. For The most common way is writing calls against a long position in the underlying stock, referred to as covered call writing.
Investors write covered call options primarily for the following reasons: 1 to realize additional return on their underlying stock by earning premium income, 2 to gain some protection limited to the amount of the premium from a decline in the stock price.
A covered call option writer's potential profits and losses are influenced by the strike price of the call he chooses to sell. In all cases, the writer's maximum net gain will be realized if the stock price is at or above the strike price of the option at expiration maturity or at assignment exercise.
Assuming the stock purchase price is equal to the stock's current prices; a If he writes an at-the-money call strike price equal to the current price of the long stock , his maximum net gain is the premium he receives for selling the option, b If he writes an in-the-money call strike price less than the current price of the long stock , his maximum net gain is the premium minus the difference between the stock purchase price and the strike price, c If he writes an out-of-the-money call strike price greater than the current price of the stock , his maximum net gain is the premium plus the difference between the strike price and the stock purchase price.
If stock prices go above the call option strike price, the investor could be assigned the option could be exercised and have to sell an equivalent number of securities.
The net selling price of the shares would be the exercise price of the call option less the premium received from the sale. This price may be higher than the market price.
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