Explain what options are and some of their uses. What is the difference between financial options and other kinds of options?
What are real options, and what are they used for?
In finance, an option is a contract between a buyer and a seller that gives the buyer the right-but not the obligation-to buy or to sell a particular asset at a later day at an agreed price. In return, the seller collects a payment from the buyer. A call option gives the buyer the right to buy the underlying asset; a put option gives the buyer of the option the right to sell the underlying asset. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire.
The theoretical value of an option can be evaluated according to ...
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