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Derivatives and Risk Management by Sundaram Janakiramanan

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16

The Black–Scholes Options Pricing Model

LEARNING OBJECTIVES

After completing this chapter, you will be able to answer the following questions:

  • What are the assumptions made in the Black–Scholes options pricing model?

  • What is meant by no-arbitrage options pricing?

  • How to calculate the price of a call option using the Black–Scholes model?

  • How to calculate the price of a put option using the Black–Scholes model?

  • What factors affect the price of call and put options?

  • What is implied volatility and how can it be used?

  • What is meant by the volatility smile and how can it be used?

BOX 16.1 Nobel Prize in Economics for Scholes and Merton

The Royal Swedish Academy of Sciences awarded the Bank of Sweden Prize in Economic Sciences in Memory ...

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