BUFN401

Will introduce Option Theory and the concept of a derivative financial contract whose value is based on some underlying asset, e.g., a stock or bond or commodity. Option theory based pricing models are a cornerstone of modern finance. Unlike the Capital Asset Pricing Model (CAPM) that determines an appropriate rate of return, option theory primarily relies on arbitrage arguments, and the probability that an option will be exercised during some time interval. Option theory has been very successful empirically. Common derivative types include stock and bond and index options, futures contracts, forward contract and swaps.