Flashcards in Lecture 11 Deck (55):

1

Multi-Period Binomial Model

2

Risk-neutral probability:

3

Two-period binomial example

4

5

value of the call at t = 0

6

Replication method

7

Theorem on Early Exercise of an American Call

It is never optimal to exercise early an American call on a

non-dividend paying stock.

8

Theorem on Early Exercise of an American Put

the price of an American put on a non-dividend paying stock

may be greater than the price of the corresponding European put. It may be optimal to exercise early an American put on

non-dividend paying stock.

9

Black-Scholes price for a call:

10

Properties of the Black-Scholes Prices

11

Practical Implementation of Black-Scholes Model

12

Historical Volatility - steps to calculate

13

Implied volatility

14

15

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