Jan 31

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A Primer on Valuing Options

When used with financial instruments, options are a contract between two parties in which one party has the right, but not the obligation, to do something.  Usually, the option involves buying or selling an underlying asset.  Having rights without obligations has financial value, so option holders must purchase these rights at a price, called a premium. Options derive their value from the underlying asset, which is why they are called derivative instruments.    An easy-to-understand  primer on the lingo and valuation technique can be found here.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/01/a-primer-on-valuing-options/

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