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 ...
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 ...
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 ...
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 ...
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? ...
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 ...
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 ...
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). ...