Option Valuation

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August 31, 2024 3 min read Definitions

Binomial Pricing: Valuation Method Based on Binomial Distributions

Finance Investments Binomial Pricing Option Valuation Finance Investments Financial Modeling

Binomial pricing is a valuation method used to price options, relying on the assumption that asset prices follow a binomial distribution. This method involves constructing a portfolio with the underlying asset and risk-free asset to match the option's pay-offs and determine its price by avoiding arbitrage possibilities.

August 25, 2024 4 min read Definitions

Black-Scholes Option Pricing Model: Understanding Option Valuation

Finance Investments Economics Black-Scholes Option Pricing Financial Models Option Valuation Derivatives

An in-depth analysis of the Black-Scholes Option Pricing Model, developed by Fischer Black and Myron Scholes, which is used to determine whether options contracts are fairly valued. The model incorporates volatility, interest rates, underlying stock prices, and time to expiration.