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Tagged with normal-distribution options
4 questions
2
votes
2
answers
158
views
Price Option B Knowing The Price of a Similar Option A
How do we find the implied volatility from the price in a call option and apply it to another option without a calculator? Or is there actually a better way?
For example, given a 25-strike 1.0-expiry ...
- 155
3
votes
0
answers
171
views
Spread vol for interest rate spread options in normal environment
Suppose I am long spread option with underlying : rate A - rate B. The vega on the option would be positive. But if I want to compute the option vega with respect to individual rates, can I use the ...
- 45
4
votes
1
answer
7k
views
How to use the Feymann-Kac formula to solve the Black-Scholes equation
I have the Black-Scholes equation for European option with maturity $T$ and strike $K$
$$\begin{cases}\frac{\partial u}{\partial t} = ru - \frac{1}{2} \sigma^2 x^2 \frac{\partial^2 u}{\partial x^2}-r ...
- 43
7
votes
4
answers
2k
views
In Black-Scholes, why is $\log{\frac{S_{t+\triangle t}}{S_t}} \sim \phi{((\mu - \frac{1}{2}\sigma^2)\triangle t, \sigma^2 \triangle t)}$?
I don't understand why in the formula
$$\log{\frac{S_{t+\triangle t}}{S_t}} \sim \phi{\left((\mu - \frac{1}{2}\sigma^2)\triangle t, \sigma^2 \triangle t\right)}$$
the mean is $(\mu - \frac{1}{2}\sigma^...
- 73