Pricing Models

"Because the difference between six and five can be very damned important " (Insp. Harry Callahan/ Dirty Harry)

The binomial model is the simplest way to price an option.

A simple way to price an european style option is to use the binomial model on a spreadsheet.

Odd or even ? Parity of the number of periods is of a great importance in estimating option value using the binomial model!

Binomial model can be drawn as a tree to get some insight.

The simplest way to price an option using a binomial tree is to do it on a spreadsheet.

Binomial model is able to take into account that an option might be american style.

Adding a constraint on a european style option tree is simple.

Numerical model are sometimes really easy to program in VBA.

Numerical models are a big family. Trinomial model is one of the son.

European style option pricing is very easy to do on a spreadsheet.

Modifications to price american style option using trinomial model are small.

American style option are very easy to price using trinomial model.

Trinomial model using VBA code

This is 'the' standard option pricing model

Black & Scholes option pricing model is the most known amongst traders. Here is how one could derive it.

Solutions for classic european style options : vanilla calls and puts

For a much more accurate management of options portfolio, it's sometimes needed to take a look at some sensibilities : that's greeks !

Delta ∆ is the first derivative of an option price with respect to the spot in the Black & Scholes model.

In the Black & Scholes model, gamma Г is just the second derivative of an option price with respect to the spot.

Theta θ represents Time decay in the Black & Scholes model, and is the first derivative of an option price with respect to the time.

There is no vega in the Black & Scholes model. Implied Volatility is taken as a constant. Traders modified the rules.

It's time to use a spreadsheet to price an option using Black-Scholes.

Rho, like vega, doesn't exist in the Black & Scholes Model.

Forex options are widely traded accross the world. Garman - Kohlhagen is a famous forex option pricing model.