Introduction to Expected Value Options on the S&P 500 Index

This case discusses a probabilistic method of valuing stock options on the S&P 500 Index. These options allow investors to speculate on, or hedge against, movements in a broad index of the market rather than an individual stock. In this case, students will be introduced to methodologies which aid in measuring the value of an option (i.e., the expected payoff) and the associated risk (i.e., the standard deviation).