Beruflich Dokumente
Kultur Dokumente
= 0 1 2
= 0 1 + (2 )
Where,
2 2
ln(0 ) + + 2 ln(0 )+
2
1 = 2 = = 1
Maturity = 6 month
Interest rate = 2%
Volatility = 30%
Interest rate = 2%
2 = 0.153 30% 6/12 = -0.059
Volatility = 30%
6
2%12
= 700 0.153 700 0.059
= $ 62.38
A. Akbari DERIVATIVE SECURITIES 10
BSM and Risk Neutral Probability
Rewriting BSM formula we can find Risk Neutral
Probability from BSM:
E | > = 2 E | < = 2
E | > = 0 1 E | < = 0 1
Borrow $10.18
we have:
= 0 1 2
= 0 1 + (2 )
2 2
ln(0 )
+ + 2 ln(0 ) + 2
1 = 2 =
60.00
Implied Volatility %
Volatility and strike 50.00
40.00
20.00
S&P 500 (SPY) with a 10.00
Strike Price
Strike Price
Strike Price
One explanation:
Implied Volatility
volatility of a firm is more
related to its production
technology (unsystematic+
systematic) and
doesnt change very much
at a cross section of time
Strike Price
FX options: Symmetric
Implied Volatility
put or call being exercised
due to moves in both
directions.
Currency crashes happen
on both sides, while for
equity is market crash on
the down side
Strike Price
Implied Volatility
Positive skewness
Strike Price
stochastic
Jumps volatility
fatter tails
(excess
kurtosis)
Flat Large
smile smile
Higher fear of
underlying
price drop
Negative
(left)
skewness
downward
sloping
smile
Positive
(right)
skewness
Higher fear of
underlying
price growth
S 0 f S f
Su in
S0 u u fd df
millisec
Sd Su S d onds!
dS
d
d
rdt
rt
df d
S f rdt
dS
d d d 2 2 2 d
d rS 2
S dt S dz
dS dt dS dS
d d
rdt d r dt d
dS
dS d
df 1 d 2 f 2 2 df
2 S dt r f S dt
dS
2
dt dS
df df 1 2 2 d 2 f
rS 2 S 2
rf
dt dS dS
Greeks