Mar
02
FRM Early Bird Episode #8
by David Harper, CFA, FRM, CIPM
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Learn Finance with the pros. Better articles, resources and screencasts for easier learning.
A 30-minute introduction to the ideas that anchor option pricing models. First, put-call parity: two equivalent portfolio constructions allow us to link the price of a call (c) to the price of a put (p). Second, under the binomial model, the no-arbitrage portfolio (i.e., short 1.0 option and long Delta shares) allows us to price the option. Third. risk-neutral pricing: the exercise of pricing the option under a riskless assumption and producing a result that applies in the real world. Fourth, an introduction to the Black-Scholes Merton.
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