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1、CHAPTERFIFTY-FOURTHEBASICSOFINTEREST-RATEOPTIONSWILLIAMJ.GARTLAND,CFAVicePresidentBloombergFinancialMarketNICHOLASC.LETICAManagingDirectorDeutscheBankSecurities,Inc.Asthesophisticationanddiversityofinvestorshavegrown,theneedforderivativeinstrumentssuchaso
2、ptionshasincreasedaccordingly.Knowledgeofoptionstrate-gies,oncetheprovinceofafewspeculators,isnownecessaryforeveryonewhowish-estomaintainacompetitiveedgeinanincreasinglytechnicalmarket.Moreover,thenewoptionstechnologyhasbeenappliedwithincreasingsuccesstos
3、ecuritieswithoptionlikecharacteristicssuchascallablebondsandmortgage-backedsecurities.InChapter51,optioncontractsweredescribed:exchange-tradedoptionsonphysicalsecurities,exchange-tradedoptionsonfutures,andover-the-counter(OTC)options.Inthischapterwewillre
4、viewhowoptionswork,theirrisk/returnprofiles,thebasicprinciplesofoptionpricing,andsomecommontradingandport-folio.AmoredetaileddiscussionofhedgingstrategiesisprovidedinChapter57.Throughoutmostofthediscussion,ourfocuswillbeonoptionsonphysi-cals.Theprinciples,
5、however,areequallyapplicabletooptionsonfuturesorfuturesoptions.HOWOPTIONSWORKAnoptionistherightbutnottheobligationtobuyortosellasecurityatafixedprice.Therighttobuyiscalledacall,andtherighttoselliscalledaput;acallmakesmoneyifpricesriseandaputmakesmoneyifpri
6、cesfall.Iftheownerofanoptionusestheoptiontobuyortoselltheunderlyingsecurity,wesaythattheoptionhasbeenexercised.Becausetheholderisneverrequiredtoexerciseanoption,theholdercanneverlosemorethanthepurchasepriceoftheoption—anoptionisalimited-liabilityinstrumen
7、t.Anoptiononagivensecuritycanbespecifiedbygivingitsstrikepriceanditsexpirationdate.Thestrikepriceisthepriceontheoptionalpurchase.Forexample,1225Copyright©2005,2001,1997,1995,1991,1987,1983byTheMcGraw-HillCompanies,Inc.Clickherefortermsofuse.1226PART7Deriva
8、tivesandTheirApplicationsacallwithastrikepriceofparistherighttobuythatsecurityatpar.Theexpirationdateisthelastdateonwhichtheoptioncanbeexercised:afterthat,itisworthless,evenifithadvalueontheexpirationdate.Ifanoption
