Intuition behind the Black-Scholes-Merton
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@citaro06
option value is strictly greater than S-K at any time before expiration.
85bezzer 3 months ago
really great! better than my prof :-)
oec4xyz 10 months ago
Brilliant!
manfan80 11 months ago
applause!!!!!!
MrEkoekoekoekoeko 1 year ago
awesome stuff!!!
MrTreez10 1 year ago
haha who dislikes this.. u might as well dislike a video about 2-2=0
SHIBBYiPANDA 1 year ago
thanks for YOUR time! that was useful!
vincentlcarter 1 year ago
option by plugging in three conditional values. 1. Option value can not be negative 2. Option value can not be greater than the underlying value 3. Option value is S-K. What I mean to say is. You are right on one part. Mathematical derivation with stochastic processes is complicated. But plugging in the stochastic process afterwards for deriving the option pricing formula is wrong.
citaro06 2 years ago
I think you got something wrong. You do not have to plug in the stochastic process. The opposite is the case. You start off by assuming a stochastic continuous movement for the underlying value. But to value a derivative the stochastic movement has the be eliminated! That is achieved by hedging. The result is the PDE! It is important because it is valid for any derivative (exotic Options and so on). The PDE has an infinite amount of solutions. It can be solved specifically for the european
citaro06 2 years ago
@citaro06 It's hardcore if you do all the Math behind it in order to derive it. The option pricing formula is not the B-S-M formula, is the solution of the BSM when you plug in the stochastic process of a stock. The more general part is far more interesting since one can evaluate and price any kind of option like exotic, asian, barrier, you name it! This is the hard part thought... :-)
kostis314 2 years ago