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 Models : Models are needed for derivatives pricing
Issued on August 08 2010 par Strategies Options
"Because the difference between six and five can be very damned important " (Insp. Harry Callahan/ Dirty Harry)
In order to find a fair value for a derivative, one needs to make some assumptions which are design to lead to theorical price. That is what is called a model.
Derivatives can't exist by themselves. An underlying is needed. In order to price a derivative, one has to find first a good model for the underlying. I - A fair value. Why ? Finding out the fair value is the only way to know if something would be worth its hedging costs. To trade something like derivatives, it's of first importance to know if some risks can be hedged and therefore the cost of such process. II - Options Pricing Models Options are the most famous derivatives and the previous rules apply to them. Famous derivative products need famous pricing models: - Black&Scholes Option Pricing Model - Cox Ross & Rubinstein binomial model. - Phelim Boyle trinomial model III - Models and comments Binomial Model : Binomial Model : Simplest Option Pricing Model Binomial Model : Let's Price With It ! Binomial Model: Let's Price With It ! ( The Revenge 2) Binomial Model : The Tree Binomial Model: How To Price With A Tree ! Binomial Model : American Style Options Binomial Model: American Style Options, Let's Price With It ! Binomial Model: VBA Code Trinomial Model : Trinomial Model : A First Approach Trinomial Model : On A Spreadsheet ! Trinomial Model: - American Style Issue- Trinomial Model: American Style In Tree - Let's Price With It ! Trinomial Model - Generalized VBA Code - Black & Scholes Option Pricing Model : Black & Scholes : A First Attempt Black & Scholes : A Standard Option Pricing Model ( Part 1 ) Black & Scholes : A Standard Option Pricing Model ( Part 2 ) Black & Scholes: The Greeks Black & Scholes : Delta ∆ Black & Scholes : Gamma Г Black & Scholes : Theta θ Black & Scholes : Vega υ Strategies Options |
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