Black-Scholes is a mathematical model used for pricing options.
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What tools are used to numerically solve differential equations in Quantitative Finance?
There are a lot of Quantitative Finance models (e.g. Black-Scholes) which are formulated in terms of partial differential equations. What is a standard approach in Quantitative Finance to solve these ...
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Black Scholes and Monte Carlo implementations in Java [duplicate]
Possible Duplicate:
Is there an all Java options-pricing library (preferably open source) besides jquantlib?
Can anyone recommend a library with an implementation of Black Scholes and Monte ...
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1answer
656 views
How should I estimate the implied volatility skew term when calculating the skew-adjusted delta?
I'm trying to come up with the implied volatility skew adjusted delta for SPY options. I'm working with the following formula:
Skew Adjusted Delta = Black Scholes Delta + Vega * Vol Skew Slope.
I ...
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3answers
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Why hold options when you can dynamically replicate their payoff?
When holding vanilla options, you can cancel out, theoretically, all risk with dynamic (delta) hedging. Then you earn the "risk free rate of return".
Why would you make such a portfolio when you can ...
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1answer
1k views
Easiest and most accessible derivation of Black-Scholes formula
I am preparing a QuantFinance lecture and I am looking for the easiest and most accessible derivation of the Black-Scholes formula (NB: the actual formula, not the differential equation).
My favorite ...
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2answers
386 views
Vanilla European options: Monte carlo vs BS formula
I have implemented a monte carlo simulation for a plain vanilla European Option and I am trying to compare it to the analytical result obtained from the BS formula.
Assuming my monte carlo pricer is ...
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1answer
409 views
Better understanding of the Datar Mathews Method - Real Option Pricing
in their paper "European Real Options: An intuitive algorithm for the Black and Scholes Formula" Datar and Mathews provide a proof in the appendix on page 50, which is not really clear to me. It's ...
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3answers
445 views
Black-Scholes No Dividends assumption
I am doing some research involving black-scholes model and got stuck with dividend-paying stocks when evaluating options. What is the real-world approach on handling the situations when an underlying ...
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5answers
838 views
How to conduct Monte Carlo simulations to test validity of Black Scholes for a specific option?
In reference to the original Black Scholes model, what approach is best to test the model in a rigorous way? Is there a standard approach that can accomplish this in a reasonable amount of time?
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3answers
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What are the main limitations of Black Scholes?
Pls explain and discuss these limitations, and explain which models can I use to overcome these limitations. Alternatively, provide examples of how to modify the original Black Scholes to overcome ...
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1answer
293 views
What are the main differences in Jump Volatility and Local Volatility
Is a JV model simply Local Vol + Jump Diffusion?
If so, it seems logical that an existing JV model be able to be used for valuation of both Vanilla and Exotic options. Is this true? Does a Local ...
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4answers
360 views
Expected Growth
The model assumption of the Black-Scholes formula has two parameters for the geometric Brownian motion, the volatility $\sigma$ and the expected growth $\mu$ (which disappears in the option formulae). ...
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1answer
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Extensions of Black-Scholes model
For the Black-Scholes model my feeling is that the volatility parameter is like sweeping stuff under the rug.
Are there models which improve on the volatility aspect of Black-Scholes by adding other ...
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1answer
248 views
Appropriate measure of Volatility for economic returns from an asset?
I am doing research on uncertainty analysis and risk assessment for oil field development. For doing economic forecast and valuation I use Real Options theory, which is almost similar to theory used ...
