Derivatives
Monte Carlo in Option Pricing
The main advantage of the Monte Carlo simulation method over binomial trees is that it can be used to price options whose payoff depends not only on the […]
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Derivatives
American Options – Binomial Trees
One method used to value an American option is the construction of a binomial tree. I have written about this before (Binomial Trees), so here I will focus […]
Derivatives
Volatility Smile
It turns out that the option price calculated using the Black–Scholes–Merton (BSM) model differs from the price formed in the real market. The reason is that the market […]
Derivatives
The Greeks – Vega (V)
Here is a clear, accurate translation into English, keeping the financial meaning intact: Vega (V) Vega is the rate at which the value of an options portfolio changes […]
Derivatives
The Greeks – Gamma (Γ)
Also, the relationship between the option price and the underlying price is not linear. Gamma determines the degree of curvature of this relationship. It is the second derivative […]
Derivatives
The Greek Letters – Δ (Delta)
Trading options requires risk hedging.Suppose an investment fund uses the Black-Scholes-Merton model to calculate the value of a call option and then sells it in the market at […]