8.9 Lessons learnt

  • The basic rules for calculating option prices were established by Black and Scholes.
  • The principles create a perfect hedging situation.
  • An option has two main components to calculate the price: intrinsic value and time/expectation value.
  • Many elements influence the price of an option. You should now understand the most important elements: Dividend, Interest, Underlying value, Volatility,  and Duration.