Deriving the Fair Price: Examining the Binomial Pricing Model and the Black-Scholes Formula
Actuaries: "Part super-hero. Part fortune-teller. Part trusted advisor" (www.beanactuary.org/what). However, in order to achieve this part super-hero status, actuarial students must first pass exams published by the Society of Actuaries. Ashland University provides classes for the first two out of nine professional exams, but during my talk, I will explore some topics covered on the syllabus for the third exam, Models of Financial Economics. After reviewing some background information on financial and derivative markets, I will explain the importance of a fair option premium. Then, using the Binomial Pricing Model and the Black-Sholes formula, we will examine these different techniques used in creating and evaluating the market price for Put and Call options with stocks listed on the New York Stock Exchange as the underlying asset.
Primary Sources: McDonald, Robert L. Derivatives Markets,Third Edition, Chapter 10 (sections 10.1 - 10.4) and Chapter 12 (section 12.1)
Math 450 Presents
Deriving the Fair Price
by Katie Hurley
Tuesday, December 1, 2015
Come join us! All are Welcome.