Commodities, Derivatives and Structured Products

Options - Part 3 (2018)


This eCourse consists of three modules. Module 1 shows the situations in which American options should be held to expiration or, in the case of an option on an income-yielding underlying asset, exercised early to capture dividend or interest income.

Module 2 looks at how the binomial technique is used to price derivatives such as American options where an equation such as Black-Scholes cannot be applied.

Module 3 looks at how Monte Carlo methods are used to price path dependent options, such as Asian options, barrier options, and lookback options, where a closed-form model such as Black-Scholes cannot be applied.


On completion of this course, you will be able to:
- Recognize how American options can be exercised any time before expiration
- Recall how time value may be lost if American options are exercised early
- Identify the circumstances in which it may be optimal to exercise an American option early
- Recognize how the binomial tree is built using up/down prices and risk-neutral probabilities
- Recall how to value an option by working backward through the binomial tree and adjusting nodes where necessary until the current option value is reached
- Recognize how Monte Carlo methods allow analysts to price a range of different options by randomly generating paths of future stock prices
- Identify the key stages in performing a Monte Carlo simulation
- Recognize the main types of path dependent option that can be priced using Monte Carlo methods


Module 1: Option Valuation – American Options
Topic 1: Overview of American Options
Topic 2: Exercising an American Option

Module 2: Option Valuation – Binomial Techniques
Topic 1: Binomial Option Pricing
Topic 2: Building a Binomial Tree & Pricing an Option

Module 3: Option Valuation – Monte Carlo Methods
Topic 1: Overview of Monte Carlo Methods
Topic 2: Monte Carlo Process
Topic 3: Pricing Path Dependent Options


Relevant Subject
Type 1 - Dealing in securities
Type 2 - Dealing in futures contracts
Type 4 - Advising on securities
Type 5 - Advising on futures contracts
SFC:2.00, PWMA:2.00
All Member: HK$680
Non-Member: HK$1020
Staff of Corporate Member: HK$680