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    Varun Agrawal
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    The document discusses the Black-Scholes model, which is used to determine fair option prices. It requires six input variables: stock price, strike price, expiry date, risk-free rate, volatility, and time. The model makes assumptions like no dividends, transaction fees or limits, and that the underlying asset follows random walk. It simplifies pricing, is widely used, and allows for easy hedging, but its limitations include volatility and risk-free rate not being constant in reality.

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    FCD PRESENTATION

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    The document discusses the Black-Scholes model, which is used to determine fair option prices. It requires six input variables: stock price, strike price, expiry date, risk-free rate, volatility, and time. The model makes assumptions like no dividends, transaction fees or limits, and that the underlying asset follows random walk. It simplifies pricing, is widely used, and allows for easy hedging, but its limitations include volatility and risk-free rate not being constant in reality.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    9 views10 pages

    FCD Presentation

    Uploaded by

    Varun Agrawal
    The document discusses the Black-Scholes model, which is used to determine fair option prices. It requires six input variables: stock price, strike price, expiry date, risk-free rate, volatility, and time. The model makes assumptions like no dividends, transaction fees or limits, and that the underlying asset follows random walk. It simplifies pricing, is widely used, and allows for easy hedging, but its limitations include volatility and risk-free rate not being constant in reality.

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    © All Rights Reserved
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    of 10

    FUTURES

    COMMODITY
    DERIVATIVES
    AISHWARYA PARATE
    HIMANSHU PATE
    SHRINIWAS NIPANIKAR
    SHRISHTI NYATI
    VAIBHAV KULKARNI
    VARUN AGRAWAL
    INTRODUCTION

    Used to determine a fair price for an options contract.

    Requires six input variables.


    The BSM model is only used to price European


    options.

    History of BSM
    WORKING OF BLACK
    SCHOLES MODEL
    BSM MODEL
    VARIABLES
    1. Stock Price

    2. Option Strike

    3. Expiry

    4. Risk Free Rate

    5. Volatility

    6. Time
    PRE-ASSUMPTIONS
    A Riskless Asset

    No Dividend

    No Transaction Fees

    No Arbitrage

    Random Walk

    Option is European Format

    No Transaction Limit
    VOLATILITY
    BLACK SCHOLES FORMULA
    BENEFITS OF BLACK SCHOLES MODEL

    SIMPLIFIES WIDELY
    EASY FOR
    OPTION USED AND SPEED
    HEDGING
    PRICING ACCEPTED
    LIMITATIONS OF BLACK SCHOLES
    MODEL

    Volatility Isn't Risk-Free Rate


    Constant Isn't Constant

    Assumes Price Changes


    Are Normally Distributed
    Assumes Prices
    Liquidity Isn't
    Are A Completely
    Infinite
    Random Walk
    THANK
    YOU!!

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