ABSTRACT
An option is a right but not an obligation to take certain action in the future. The action can be taken at a predetermined time (European option) or anytime before a predetermined time (American option). For example, a contract to pay $0.10 now for the right to claim $2.00 in 1 year by paying €1 is
an option that gives us the right to buy $2.00 for €1 in that timeframe. This option will not be exercised if the dollar continues its depreciation and the price of €1 is more than $2.00 in 1 year. If the price of €1 is less than $2.00, we will exercise the option and pocket the difference. This is a simple and self-standing option with no interactions and can be solved with available closed-form solutions.
