Financial Derivatives: Probability that Call Option Will Expire Into Money

Calculation of the probability that call option on the stock will expire into money. We assume that return on the stock follows Geometric Brownian motion (GMB).

I recommend:
1. Neil Chriss, Black-Scholes and Beyond
2. John Hull, Options, Futures, and Other Derivatives
3. http://youtube.com/bionicturtledotcom
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Category:

Education

Tags:

• financial
• derivatives
• call
• option
• Geometric
• Brownian
• motion
• vorojtsov

[navajo5150]

Thank you for your video Serguei. Your video helped alot. I have wanted to invest for some time now. I have also watched it a couple times now.

[vorojtsov]

Thank you, navajo5150!

[dis00a]

I've actually watched this video more than once. I made my first investment a year ago and have little understanding of finance calculations. The math gets a little advanced for me toward the end, so I keep watching until the theory sinks in. Thanks for taking the time to put this video together, Vorojtsov; it's fascinating.

[vorojtsov]

Hi dis00a! You are welcome! If you would like to get more details please refer to Neil Chriss, "Black-Scholes and Beyond".

[mvogt]

Hi, I watched the whole video.

The most interesting part for me was around 30mins.

So if you invest money into a risk neutral market, i.e. a market that has an expected profit value 0 in a very small timeframe, you still end up losing money in the long run, because of the variance according to the equation at 31mins, if I understood that right.

If so that is very counter intuitive.

Thanks for the video.

[vorojtsov]

Hi mvogt! I agree it is counter-intuitive. However from pure mathematics if you take the rate of return following GBM and have non-zero variance then one can clearly see that it does suppresses the expected rate of return on the stock in the long run. Thank you for comment! I may produce another video if I come up with a better way to illustrate this point.

[Maraquinn]

I know I've hit rock bottom when I'm searching for even youtube clips to help me pass my next derivatives test.

*sigh*

[luenenrocks]

perfect addtion to my studies, thx!

[acidentallycool]

Great video please keep them coming. Could you use an example please ? that would be great. Thank you

[DrLasker1]

I love this video!! This is fascinating stuff! (Though i don't fully understand all of it...)

[ahmedalsharman]

I had this in the Exam paper yeasterday,

15% of the exam mark was on this

[philip11901]

Thanks for the video.. excellent explanation!! But I have a question.. I think that the Probability that Call Option Will Expire Into Money is equal to the Delta(Greeks), so it is Φ(d1) and not Φ(d2) that is the result in your video!! Is that right?? Or it is the same?? I am a little bit confused.. thanks in advance for any help!!

[FamilyBruiners]

Do you have the excel formular for this operation? I am struggling to get this right.

[devil1887]

Otlichno! Spasibo za video - student iz Avstralii

[bigdogITbiker]

presentation quality needs work.

[AmalAshoor]

You are awesome!! Thanks and keep up the good work!!

[MrDokajan]

he's got a pizdec accent

[Utopius777]

Really enjoyed this video and am particularly impressed with your presentation platform.

I am currently teaching undergraduate finance and would very much like to use your 'proprietary Vorojtson platform' during live presentation. In addiition, this platform would finally free the student from the need to take redundant notes.

What is the pricing scheme?

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