Literature review: options and its applications

In particular, an option is a contract that confers the right, but not the commitment to buy a volume of the underlying asset in case of a call option and sell in case of the put option at a specified price on or before the expiry date. The practice of trading options dates back to ancient times, and the earliest documentation of option exchange can be traced back to historical texts such as the Bible. The beauty of the option is that an investor can make more profit from a small investment. Investments in options are made utilizing leverage, they are regularly used to enhance the profit of the portfolio greatly. This study is divided into two main sections: the initial part delves into the historical evolution of options and the models used to price them. In contrast, the subsequent section focuses on practical applications of options.