Building an options pricing model..need some help..
Sup everyone, I am building an options pricing model and wanted to get some tips on what resources I should refer to when building it, and inputs I must keep in mind so I can be as accurate as possible. Garbage in garbage out, I want to avoid that at all costs..
i heard there's a new model out there that's pretty cutting edge. i think it was called Black- something. might be worth looking into
haha, i was thinking the exact same thing when i saw the tag line
yeah, black soles I believe. There's another one called bipolar tree model or something. it's brand new and not a lot of people know about, so might give you an edge in the markets.
It's black scholes u stupid mofoggas
really?? are you absolutely sure about that?
look up the meaning of irony. what a nut...
Black-Scholes is rudimentary, I am looking to do some detailed analysis. You know, something that requires some actual thinking...
Black-Scholes is not as rudimentary as you might think and is still widely used in the industry. If you want to go more fancy you need to account for the stochastic nature of the other dependent variables in your option model (i.e. volatility, interest rate) rather than treating them as deterministic. A starting point is the Merton-Garman model which assumes stochastic volatility with two separate Wiener processes for stock and volatility (with some pre-specified correlation). The Merton-Garman equation has exact solutions only for a small set of parameters, which can be found efficiently using path integral methods.
what's your background? PDEs/path integrals or stochastic calculus?
look, you can me a binomial/trinomial lattice and get funky with some stochastic dynamic programming or some crap like that. but you are likely to get the same value you'd get if you applied back-scholes ... that s why they got a nobel you know...
If you still want to be one of the cool guys, read the hull book and you're done there a website from a stochastic calc course in nyu http://homepages.nyu.edu/~ak1103/Teaching/Spring2011.html
needless to say, a poetry degree won't be of much help here...
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