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Derivatives




Boundary Conditions


The constraints which are posed on the value of an option such as those determining the relationships among an option’s underlying price, intrinsic value, and forward intrinsic value. Arbitrage opportunities arise if boundary conditions cease to hold. In this case, traders can make risk-free profits by buying cheap and selling dear. The boundaries are set as equations that describe an option’s minimum and maximum values under varying circumstances.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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