The 365 Data Science team is proud to invite you to our own community forum. A very well built system to support your queries, questions and give the chance to show your knowledge and help others in their path of becoming Data Science specialists.
Ask
Anybody can ask a question
Answer
Anybody can answer
Vote
The best answers are voted up and moderated by our team

Finding the payoffs in the ‘Probability in Finance’

Finding the payoffs in the ‘Probability in Finance’

0
Votes
1
Answer

Hi There,
 
In the course video, in min 3.55, the price of $100 was subtracted from the profit of $1000, hence $900 is displayed, in ‘Call’ leaf.
If you follow, similar logic, then instead of the -$1100 quote you should deduct the -$100 amount to make it -$1200.
Please suggest if my understanding is correct.
Regards
Sambodhan D.

1 Answer

365 Team
0
Votes

Hey Sambodhan,

So, the – $1,100 comes from losing $100 on each of the 10 stocks you bought (since the price is now 1,000, instead of 1,100) and the premium. Hence, in that scenario, we\’re would be paying 10 * 1,100 + 100 = $11,100 for something that is only worth 10 * 1,000 = $10,000. Thus, 10,000 – 11,100 = – 1,100 is the payoff in this scenario.

Best,

365 Vik