When the market is not complete, there is a need to create new securities in order
to complete the market. One approach is to create derivative securities on the existing
securities such as European-type options.
A European call option written on a security gives its holder the right( not obligation)
to buy the underlying security at a prespeci ed price on a prespeci ed date; whilst a
European put option written on a security gives its holder the right( not obligation) to
sell the underlying security at a prespeci ed price on a prespeci ed date. The prespeci ed
price is called the strike price and the prespeci ed date is called the expiration or maturity
date.
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