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7 votes

Preferred Option pricing model

General Comment: In industry, you're effectively an engineer/mechanic. You choose the best tool for the job, and there is no 1 tool that works with everything because they all have different benefits ...
THATS MY QUANT MY QUANTITATIVE's user avatar
1 vote
Accepted

Why would you take a Loan when trying to Illustrate a Riskless Hedge?

More generally, in finance almost all replication arguments always assume that you have no cash to begin with (usually also there are simplifications such as assuming that there is no credit risk and ...
user68819's user avatar
  • 485
1 vote
Accepted

time value of option proportional to sqrt(time)

Vol scales with the square root of time (i.e. variance is linear in time), therefore the value of an option diminishes with it too.
user68819's user avatar
  • 485
1 vote
Accepted

Expectation of average, conditional on terminal value

My attempt at an answer (as I've said in the comments, I'm quite rusty... any corrections are appreciated) We have $S_0 > 0$, and since we know $S_T$ we know $\sigma \sqrt{T-t}W_T = b$ for some $b \...
Rylan's user avatar
  • 605
1 vote

Is the Black Scholes PDE actually immediate from Ito's lemma?

The derivations of the Black & Scholes PDE being accurate or not has absolutely nothing to do with whether we write the Ito formula for the call price, in differential form, $$\tag1 dC=C_t\,dt+C_s\...
Kurt G.'s user avatar
  • 2,033
1 vote

Black-Scholes formula proof, without stochastic integration

There are two holes in your proof Why value is given by expectation at all How to choose $\mu$ and $\sigma$ Girsanov tells you that $\sigma$ stays historical, 1) comes from fundamental pricing ...
achirikhin's user avatar

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