Options and pricing
The contracts quants are famous for pricing. Build payoffs in code, then price an option three different ways.
- What is an option?A contract that gives you a choice, and why a choice is worth money.
- Payoffs in codeTurn the payoff rule into a function and see its shape.
- PutsThe option that pays when prices fall.
- Put-call parityA rule that ties calls, puts and the stock together.
- A first price: expected payoffUse what you know about expected value to put a number on an option.
- The binomial modelPrice an option by building a portfolio that cannot lose or win.
- Monte Carlo pricingWhen the math gets hard, simulate.
- Delta and hedgingHow option traders stay neutral while the stock moves.
- The Black-Scholes formulaThe most famous equation in finance.
- Implied volatilityReading the market's forecast out of an option's price.
- Combining optionsBuild new payoffs out of calls, puts and the stock.
- Track quizFive questions. Get four right to finish the track.