Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Folia Oeconomica Stetinensia

The Journal of University of Szczecin

2 Issues per year

Open Access
See all formats and pricing
More options …

Probability of Exercise of Option

Beata Stolorz
  • Department of Econometrics and Statistics Faculty of Economics and Management, University of Szczecin, Mickiewicza 64, 71-101 Szczecin
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
Published Online: 2007-12-03 | DOI: https://doi.org/10.2478/v10031-007-0001-8

Probability of Exercise of Option

To estimate the risk the investors take when investing their money in stocks or stock options one must study if the option is exercised or not. From the point of view of a call option writer, especially those uncovered, one should study the probability of the exercise of option by a holder. The method presented in the paper enables to estimate risk connected with investment in options. In the assessment of risk that is born when investing money in stocks or options it is interesting whether the option will be exercised or not. From the writers' point of view, particularly those without coverage, it could be necessary to analyse probability of the exercise of options by buyers. The described method allows to assess at any time of call option duration whether the investor can be certain of the result of their investment. It can be applied also for the option strategies. In the paper the author has attempted to estimate the risk of call option and to estimate the probability of profit achievement in the case of long strangle option application. Investors using option strategies are able to do preliminary analysis of options and to minimize risk of their investment through choosing a proper date and price of exercise.

Keywords: risk; option strategies; mathematical methods; probability

  • Hull, J. (2003). Option, Futures and Other Derivatives. New Jersey: Prentice Hall.Google Scholar

  • Jajuga, K. & Jajuga, T. (1998). Inwestycje, instrumenty finansowe, ryzyko finansowe, inżynieria finansowa. Warszawa: Wydawnictwo Naukowe PWN.Google Scholar

  • Ross, S. M. (2003). An Elementary Introduction to Mathematical Finance. Cambridge: University Press.Google Scholar

  • Stolorz, B. (2005). Funkcja prawdopodobieństwa realizacji opcji dla logarytmiczno-normalnego rozkładu cen. Prace Naukowe Akademii Ekonomicznej im. Oskara Langego we Wrocławiu, 1088, 262-268.Google Scholar

  • Stolorz, B. (2006). Funkcja prawdopodobieństwa realizacji europejskiej opcji kupna akcji. Zeszyty Naukowe Uniwersytetu Szczecińskiego, Prace Katedry Ekonometrii i Statystyki, 415(16), 245-255.Google Scholar

  • Stolorz, B. & Tarczyński, W. (2002). Ocena prawdopodobieństwa realizacji europejskiej opcji kupna akcji. Rynek Terminowy, 16(2/02), 31-34.Google Scholar

About the article

Published Online: 2007-12-03

Published in Print: 2007-01-01

Citation Information: Folia Oeconomica Stetinensia, Volume 6, Issue 1, Pages 1–14, ISSN (Online) 1898-0198, ISSN (Print) 1730-4237, DOI: https://doi.org/10.2478/v10031-007-0001-8.

Export Citation

This content is open access.

Comments (0)

Please log in or register to comment.
Log in