Option contracts in risk management and an application on option pricing

Due to the spread of globalization and international trade, together with the switch from Bretton Woods system to floating exchange rate system, exchange rates between the national currencies has made the currency risk a serious problem for both businesses and individuals. Derivatives, which started to be used in non-organized markets in the past, started to be traded in organized markets in the financial system in time and contributed to the deepening of the market. With these developments, derivative instruments have become an investment tool that investors have begun to use for hedging, speculation and arbitrage purposes. The options have an important place in the derivative instruments because of limited loss and theoretically unlimited profit opportunity. In the study conducted on options, it has been tested with Black&Scholes and Binomial option pricing methods in order to transform the economy into a profitable investment opportunity with the correct strategy made on the basis of sector and option type in case of the contraction of the economy due to the increase in inflation by the exchange rate fluctuations. As a result, similar values were obtained with both models. It has been observed that profit can be obtained in economic contraction situations applying the right strategy and using the options priced with said pricing methods. Keywords: Risk Management, Option Contracts, Option Pricing Models.