black-scholes made easy
TRANSCRIPT
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tock Options Animated Tutorial and Analytics
Black-Scholes Made Easyy Jerry Marlow
he fastest and easiest way to learn about stockptions,ption prices, stock-market volatility, and Black-
cholesptions pricing theory.
croll down. Take a look at the demonstrations,mulations,
nd analyses you can run with Black-Scholes Madeasy.he tutorial teaches you all about options, how to
un the demonstrations, how to run the simulations,
nd how to dohe analysis.
o find out how you can learn all about options the
ast,asy way with Black-Scholes Made Easy, click here.
o go to implied volatility calculator, click here.
http://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htmhttp://www.investmentrisk.us/impvolhttp://www.investmentrisk.us/impvolhttp://www.investmentrisk.us/impvolhttp://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htmhttp://www.optionanimation.com/getbsme.htm -
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olatility means that a stock's future price path isncertain
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he more volatile a stock, the more uncertain itsuture value
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n option can make you a ton of money or you canose it all
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forecast for a stock is a bell-shaped curve
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ou are 99.7% certain the outcome will be withinhe curve
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ne chance in ten that price will be in any givenecile
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ou can translate a forecast into potential priceaths
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onte Carlo simulations show relationship betweenaths and forecast
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ontinuously compounded returns are normallyistributed
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tock-price changes are lognormally distributed
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rice paths are characterized by geometricrownian motion
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olatility is constant over the investment horizon
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ay not be your customary way of thinking
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ose all your money, rate of return is negativenfinity
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ontinuously compounded return on portfolio?
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onvert simple interest to continuouslyompounded
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ind the present value of a future dollar amount
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xpected return is average of all returns inrobability distribution
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tock s expected return is median plus halftandard deviation squared
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xpected return varies with time
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ncertainty varies with square root of time
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s your portfolio manager talking holding-periodeturns?
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ock Random Seed lets you create the same priceath with variations
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ividend payments reduce the price of a stock
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ividends shift price probability distribution down
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dividend yield shifts price probability distributionown
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call gives you the right to buy a stock at a pre-setrice
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imulate potential outcomes of investing in a call
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istogram approximates probability distribution forption
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ption's expected return is average of returns inrobability distribution
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olor deciles link stock forecast to option forecast
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t extremes of probability distributions, divide intomore intervals
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ut gives you right to sell a stock at a pre-set price
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imulate potential outcomes of investing in put
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alculate put s probability of profit and expectedeturn
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f you re thinking and counting trading days, setays per year to 252
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oes the expression probability density functionmake your brain hurt?
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n option s probability-weighted net present value
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t s like doing discounted cash-flow analysis inorporate finance
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nimation calculates cost of setting up delta hedge
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lack-Scholes assumptions envision a risk-neutralworld
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lack-Scholes sets expected return equal to risk-ree rate
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or strike prices at extremes of wide distributions,se more intervals
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lack-Scholes value of a put
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f option has time value, don t exercise it early
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s put goes deep into the money, may bedvantageous to exercise early.
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ption s value may be its early-exercisealue Black s approximation
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When to exercise deep-in-money put if underlyingays lumpy dividends?
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ay be optimal to exercise on last ex-dividend date
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ption value depends on location of little squareselative to strike price
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What if put goes deep into money and underlyingays dividend yield?
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What if call goes deep into money and underlyingays lumpy dividends?
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aybe exercise on last day before underlying goesx-dividend for last time
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What if call goes deep into money and underlyingays dividend yield?
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epends on yield, time value, volatility, expectedeturn, risk-free rate
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f call on underlying that pays no dividends, neverxercise early
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eeper into money, less sensitive option value is tohanges
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ega If volatility increases, value of call goes up
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elta When spot price increases, value of call goesp
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ho Increase in risk-free rate increases medianeturn. Call value goes up.
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elta When spot price increases, value of put goesown
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heta As time passes, put s value goes down.sually!
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ho Increase in risk-free rate increases medianeturn. Put value goes down.
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rom Black-Scholes value, extract stock s impliedolatility
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raw risk-neutralized, market-equilibrium forecastor stock
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f agree, then stock and option have same expectedeturn
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f disagree, then use option to leverage expectedeturn
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id and ask prices give different implied volatilities
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ifferent strike prices give us volatility smile
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ifferent expiration dates give us term structure ofolatility
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heoreticians keep building alternative models
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arket-equilibrium forecasts
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imulate potential price paths of a call snderlying
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nter dividend schedule for a call s underlying
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alculate calls probabilities of profit and expectedeturns
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imulate call s potential investment outcomes
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f you think somebody's bubble is about to burst,uy puts
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alculate puts probabilities of profit and expectedeturns
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imulate put s potential investment outcomes
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onversation with animations
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our value at risk
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n investment strategy that allows you to expressour views and have your portfolio s value nevero down
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nvest risk free an amount that interest will growack to original portfolio value
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ranslate your beliefs into a forecast
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nvest foregone interest in options
rry Marlownancial Writer
ersuasive Writing about Complex Issuesiting of Dull Writing into Powerful Prose
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ansformation of Dull Speakers into Dynamostorials on Stock Options, Financial Theory and Black-Scholes Options-
icing Theoryaluation of Employee Stock Options in Divorce Proceedingsmples of Financial Writingmples of Persuasive [email protected]
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