30 years: Financial markets trader
The Black-Scholes Merton option pricing model is the Nobel Prize winning formula that is used as the basis of pricing options. In this video, Abdulla will discuss option pricing without Black-Scholes and in doing so it will provide hints to understanding the more complex area of option Greeks which will be covered in the second video on this topic.
The Black-Scholes Merton option pricing model is the Nobel Prize winning formula that is used as the basis of pricing options. In this video, Abdulla will discuss option pricing without Black-Scholes and in doing so it will provide hints to understanding the more complex area of option Greeks which will be covered in the second video on this topic.
5 mins 8 secs
Pricing an option requires a range of outcomes with the associated probability for each outcome, in other words, we need to make an assumption regarding the future probability distribution. We can work out the total probability weighted payoff based on our assumptions, which when discounted gives us the option price.
Key learning objectives:
Outline the Black-Scholes formula
Describe an option payoff
Understand how we price an option
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