NEW MODEL OF OPTION VALUE
The idea of new option value model
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The investors in every market decission and
every way of thinking are using the most natural method.
This natural method is to think linear. Every prediction of future is
taking its root in linear thinking.
On this basis I started to think that option value should be a linear
function.
The variable of the function is the strike price and the coefficients
are risk free interest rate of 52 weeks t-bonds,
volatility of price measured in the
case by absolute value of ROC for option life time period. I assume at the same
time that
intrinsic time value of the option
should decrease in linear way with the time.
The tangent coefficient of this intrinsic value of the option line can
be put this way :
where :
R – actual 52 week t-bond rate
ROC – rate of change
TE – time to expiration
OLTC – option life time cycle
I present my model of option value below :
1. S>X
2. S<X
where :
S – settle price
X - strike
price
OCV – call option value (total value or intrinsic time value when
S<X)
OPV - put
option value (total value or intrinsic time value when S>X)
QF – quotation factor that means number of lots in a contract specified
(e.g. Robusta coffee 5 tones per lot/contract) or the figure to multiply the
quotation to get the value ( one contract has 1 lot
equals 5 tones than QF=5) of option quoted (quotation is 7, value is 70 than
QF=10).
Free option calculator with this option value model mzOMCalc
(www.ascot.pl)
Kind regards
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