30 years: Financial markets trader
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.
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.
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5 mins 12 secs
The price of an option is the present value of the total probability weighted payoff. However, there are some discrepancies in the calculations when compared with the Black-Scholes method. These are outlined below for changes in spot/strike prices, interest rates, time to expiry and the volatility.
Key learning objectives:
Understand the future probability distribution
Describe the volatility of the underlying asset
Outline how far away the spot is in relation to the strike, the forward price, and the time to expiry
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No Black Scholes | Black Scholes | |
Call Price | 6.599 | 5.979 |
Put Price | 5.459 | 5.979 |
No Black Scholes | Black Scholes | |
Call Price | 22.047 | 20.891 |
Put Price | 0.765 | 0.891 |
No Black Scholes | Black Scholes | |
Call Price | 1.140 | 0.979 |
Put Price | 15.168 | 15.979 |
No Black Scholes | Black Scholes | |
Call Price | 11.288 | 9.948 |
Put Price | 8.592 | 9.948 |
No Black Scholes | Black Scholes | |
Call Price | 2.064 | 1.995 |
Put Price | 1.929 | 1.995 |
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
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