Question

Evaluate how models used for valuing stock options can be adapted to other underlying assets such as stock indexes.

Answer 1

Valuations for using the stock price can be applied to valuations of stock indexes by providing out the weighted value to the index and then ascertaining the overall valuation.

Like if one wants to calculate the price to earning of the index, he will be ascertaining the earnings of the shares in the proportion of the index and then the price to earning ratio of the index will be calculated.

similarly it is to be decided that the index is whether the price weighted index or the value weighted index and then the valuation methods are to be applied to those index in order to find out the appropriate Valuation