Business and Personal Finance Dictionary

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• OPTION MODELS
  
  Are evaluation tools to determine the price, the premium, or the volatility for a put, call, or complex position or strategy. Sometimes, the list for option models includes: convertible securities, mortgage and asset backed securities, and warrants. Option models may be categorized as credit, currency, equity, index, futures, and physical or cash oriented. The basic factors for an option model are: the underlying market price, the strike or exercise price, the interest rate for discounting purposes, the volatility, and the time to expiration. Some models require expected dividends, coupons and foreign exchange considerations. Some of these models are: Binomial, Black, Black Scholes, Cox, Ingersoll, and Ross (CIR), Gastineau-Madansky, Heath, Jarrow, and Morton (HJM), Ho and Lee, Hull and White, Jamshidian, Rendleman and Bartter, Vasicek, and Whaley. Often these models have modifications. Usually, the modifications are at the practices level in order to expedite calculations.
  
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