rajah9
Reputation
455
Top tag
Next privilege 500 Rep.
 Dec 23 comment How much would one pay for the max of two stocks? Welcome to Quantitative Finance! Would you please add your research on the matter and what you think the answer might be? (Perhaps a tree with values of starting and ending states). Dec 17 answered Double no touch option with four barriers Aug 24 awarded Custodian Aug 24 reviewed Reject Drawbacks of Black-Scholes option pricing model Sep 30 awarded Explainer Sep 24 awarded Autobiographer Aug 7 awarded Yearling Aug 7 comment Drawbacks of Black-Scholes option pricing model @emcor, I have edited to quote salient portions of Cornell's paper and added my commentary. Aug 7 revised Drawbacks of Black-Scholes option pricing model added quotes from original paper with running commentary Dec 19 comment Drawbacks of Black-Scholes option pricing model Oh, and another question for the Oracle. Was that an American or European put? Any way I can exercise it before I die? Dec 19 comment Drawbacks of Black-Scholes option pricing model Or here's another vein that I might leave to the OP. Constructed a 100-step binomial tree, and assume the index goes up or down by sigma each year. Start at 930. What will the put be worth in year 100? In many cases it will be 0, but in the rest it will be > 0 but <= 930. (By the way, I put this into DerivaGem, S=930, K=930, r=1%, q=2%, vol=25%, T=100. For continuous dividends, the 100-year puts should cost $300.32 each.) Dec 19 comment Drawbacks of Black-Scholes option pricing model In Buffet's opinion, very long-term options (his example was 100 years) are overpriced by the B-S model. He needs to remember that B-S is predicated on log-normal prices, that is, the ratio of today's price to a future price. Index prices can't go below 0, but they can go down to a tiny fraction of a penny. If I were to engage the Oracle of Omaha on this topic, I'd ask: Who will take the other side of your$1B option with 100 years to expiration and a strike of 930? Dec 17 comment BS Implied Volatility under Normal returns To find the theoretical prices then you will have to use a guess at volatility. If you use that theoretical price, your implied volatility will simply be your guess. That volatility, BTW, is annual, log-normal volatility, because of the Ln(S0/K) in the calculation of d1. Dec 17 answered Drawbacks of Black-Scholes option pricing model Nov 21 awarded Editor Nov 21 revised Finding Probabilities Using The Binomial Model improved formatting of math terms Nov 21 suggested approved edit on Finding Probabilities Using The Binomial Model Nov 21 answered Finding Probabilities Using The Binomial Model Sep 12 comment SP500 sector weights - how do they change? Thanks for sharing the reply. Feb 10 awarded Yearling