American Option and European Option, their calculations and their Boundray conditions ... it's a Mess [Help!!]

[dinesh.sundrani]

Friends,

I am shocked to see the level of complexity in LOS 76.

Reading 76: Option Markets and Contracts
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f. identify the minimum and maximum values of European options and American
options; calculate and interpret the lowest prices of European and American calls
and puts based on the rules for minimum values and lower bounds;

g. describe the relationship between options that differ only by exercise price;

h. explain how option prices are affected by the time to expiration of the option;

i. explain put-call parity for European options, given the payoffs on a fiduciary call
and a protective put;

j. explain the relationship between American options and European options in
terms of the lower bounds on option prices and the possibility of early exercise;

k. explain how cash flows on the underlying asset affect put-call parity and the
lower bounds of option prices;

l. identify the directional effect of an interest rate change or volatility change on an
option�s price.
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I tried reading the Schweser material twice and still I have no idea of what's exactly happening. I am from Technology background and I almost fainted reading those 10 page material.

Any simple way of going thought the American Option and European Option, their calculations and their Boundray condition. Could anybody explain me the real thing?

 

[Dsylexic]

please read from the CFAI texts and hopefully after you have made an honest attempt, you could post specific questions here. just asking someone to explain you the whole thing is,IMO, very lazy of you.

 

[JoeyDVivre]

I agree. This is the program. If you are shocked to see this level of complexity, you might want to think of getting some different certification. It only gets worse from there and all that stuff is pretty basic.