Research the topic relating to the concept of the definition and application of financial options.

Required: Include information about how options are used in business to effectively hedge against unforeseen changes in the prices of the underlying asset.

hint:

• define a call option and a put option, and describe the pay-off function for each of these options
• describe the factors that affect the value of an option and calculate the value of a call option and a put option
• name some of the real options that occur in business and explain why traditional NPV analysis does not accurately incorporate their values