SYLLABUS Previous: 4 EUROPEAN OPTION PAYOFF
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4.1 Plain vanilla stock options
Following a rather descriptive chapter 2 where the terminal
payoff of an option was only defined on the expiry date, increasingly
sophisticated methods have been introduced in the previous chapter
3 to calculate the fair value of an option before it expires.
Using these tools, we about to explore how the price of a financial
derivative evolves with time. Rather than limiting the analysis to
simplistic models or restricting the audience to so-called ``rocket
scientists'', we will take advantage here of numerical experiments
that can be performed using the VMARKET applet :
your task will be to run the simulations, edit the parameters and
analyze the output to develop your intuition, using the same methods
that are used by the professionals.
The second part of this chapter is more advanced and deals with the
implementation of financial models using both analytic and numerical
methods.
Subsections