Pricing and Valuing Financial Instruments · 11. novembre 2023
The Jump-to-Default Approach in option trading, modeled by an SDE, highlights how sudden stock price drops (J) affect low strike call options, especially under high credit risk. This contrasts with the Black-Scholes model, which assumes continuous price movements. In high-risk scenarios, the market often lowers the value of these options, factoring in potential defaults, and adjusts implied volatility accordingly. #OptionPricing #CreditRisk #FinancialMarkets #TradingStrategies #InvestmentRisk
Stochastic Models and Processes · 08. septembre 2023
Unpack the myth that option Delta equals the probability of expiring in-the-money. Dive into risk-neutral valuation and the Black-Scholes model, where assets grow at a risk-free rate, making Delta an unreliable real-world probability indicator. Explore the distinction for smarter option trading. #OptionTrading #BlackScholes #RiskNeutralValuation