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Visual Quantitative Finance: A New Look at Option Pricing, Risk Management, and Structured Securities
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Visual Quantitative Finance: A New Look at Option Pricing, Risk Management, and Structured Securities

by Michael Lovelady
April 2013
Beginner content levelBeginner
336 pages
6h 40m
English
Pearson
Content preview from Visual Quantitative Finance: A New Look at Option Pricing, Risk Management, and Structured Securities

5. Full Black-Scholes Model

In this chapter, the option pricing spreadsheet is expanded to add full Black-Scholes functionality. Full functionality refers to the ability to price options under any set of assumptions, including option terms, stock prices, strike prices, risk-free rates, dividend rates, and volatilities.

To get started, let’s review the relationships between random variables, discussed in Chapter 2, “Random Variables and Option Pricing.” Figure 5.1 is an updated version of Figure 2.1, where the Stock Return Mean has the correct value of –4.50%.

Image

Figure 5.1. Modified Figure 2.1: the spreadsheet formulas

In the figure, Column A contains ...

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Publisher Resources

ISBN: 9780132929233Purchase book