Option Pricing without Black-Scholes
Abdulla Javeri
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.
Option Pricing without Black-Scholes
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:
What is the Black-Scholes formula?
What is an option payoff?
How do we price an option?
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Option Pricing without Black-Scholes Illustration
In the first video on this topic, Abdulla discussed option pricing without using the Black-Scholes model but left a few unanswered questions. In this video, Abdulla will cover those remaining questions relating to the appropriate probability distribution to use, the volatility of the asset, how far away the spot is in relation to the strike, the forward price and the time to expiry.
Abdulla Javeri • 05:12