Premium are not considered why? If the option is in the money, Long has credit risk due to having a position position. If the option is out of the money, no credit risk exists as the option will expire. Financial Exam Help The book says value of option will be credit risk to long. But then they give an example that according Black Sholes the current value is 8. So that is our credit risk. Is that risk same as risk current market premium? The long has potential credit risk equal to the value of the option because they could choose to sell it for that price and the buyer might default. So … discounting credit the risk-free credit back to today … zero days … gives us … Oh, wait …. I think the way it works with options is very much different say compared to forwards because of the asymmetric payoff. Even out of money option have value because of the concept of time value. Thus by simply discounting back does not yield the actual value because it does not consider time value amount. Not just max 0, S - X. The intrinsic value is what it is however can change considerably from now until maturity. At maturity the credit risk is obivously the intrinsic value. For an AMERICAN ITM option you could argue the same, risk though the option is Options, depending on when the Long choses to excercise it could go OTM or even increase in value even more. So to answer your question - yes. The current option value is the current credit risk to the buyer. Exchange traded options are guaranteed by the OCC, very similar to how futures are guaranteed. So they have zero credit risk. Even if the short fails to deliver the underlying asset the clearinghouse will step in and assume the other side of the trade. The original counter party could default, but you will still receive payment regardless. AnalystForum is an online community designed exclusively for CFA candidates and charterholders to discuss the Chartered Financial Analyst program. Skip to main credit. Be prepared with Kaplan Schweser. CFA More in CFA CFA Test Prep CFA Events CFA Links About the CFA Program. CFA Forums CFA General Discussion CFA Level I Forum CFA Level II Forum CFA Level III Forum CFA Hook Up. More in CAIA CAIA Test Prep CAIA Events CAIA Links About the CAIA Program. More in FRM FRM Test Prep FRM Events FRM Links About the FRM Program. Test Prep Sections CFA Test Prep CAIA Test Prep FRM Test Prep. Home Forums CFA Forums CFA Level III Forum credit risk on options? Tweet Widget Facebook Like Google Plus One Linkedin Share Button. Then make sure you options everything you could to prepare—enroll in credit review workshop to ace it on exam day. CFA Passed Level III AF Points. CFA Level III Candidate 50 AF Points. Now, the credit risk is: Matori May 21st, 8: Smagician May 21st, options Boardmember, Forum Editor CFA Charterholder 18, AF Points. A key component of risk is uncertainty: The uncertainty to the short is the at the option will move in the money and be exercised. Simplify the complicated side; don't complify the simplicated side. CFA Charterholder 1, AF Points. Risk option still has time valueso the long party bears some credit risk. CFA Level III Candidate 35 AF Points. Smagician May 21st, 2: CFA Passed Level III 1, AF Points. Related question - A European option has no current credit risk. Smagician May 21st, 6: No fancy calculations involving the risk-free rate like that for a swap? Smagician May 21st, 8: Anyway, even I know that the present value of a future spot price is…. Basically do you consider the intrinsic value as the credit risk? CFA Level III Candidate AF Points. Chuckrox8 May 27th, 2: CFA Charterholder 3, AF Points. BayStreet May 27th, 6: Tough guys fry chicken for a living. This Post Is Filed Under: Kaplan Schweser and NYSSA: Options Learning - Toronto - Top 10 Common Pitfalls to Avoid - FREE EVENT. About AnalystForum AnalystForum is an online community designed exclusively for CFA candidates and charterholders to discuss the Chartered Financial Analyst program.
This is the second webinar in the REFOR15 Series, a series created to bring to you the best attended, ABC-organized REFOR15 sessions held recently in Boston.
I read this and was able to see the event because it was clear and detailed.
This is the second webinar in the REFOR15 Series, a series created to bring to you the best attended, ABC-organized REFOR15 sessions held recently in Boston.