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  1. S

    Normal IV vs. Log-normal IV

    Hi All, Anyone has any idea/thoughts around how we can convert Log-normal Implied Volatility(Black Scholes) to Normal Implied Volatility?
  2. Nicole Seaman

    YouTube T4-10: Lognormal property of stock prices assumed by Black-Scholes

    Although the Black-Scholes option pricing model makes several assumptions, the most important is the first assumption that stock prices follow a lognormal distribution (and that volatility is constant). Specifically, the model assumes that log RETURNS (aka, continuously compounded returns) are...
  3. David Harper CFA FRM

    P1.T4.815. Black Scholes value of a warrant and implied volatility (Hull Ch.15)

    Learning objectives: Compute the value of a European option using the Black-Scholes-Merton model on a non-dividend-paying stock. Compute the value of a warrant and identify the complications involving the valuation of warrants. Define implied volatilities and describe how to compute implied...
  4. Nicole Seaman

    FAQ Exam Will the exam always provide N(d1) and N(d2) or do we need to know how to calculate them? (Are formula sheets provided? Answer: No)

    Question: The BSM formula is actually simple except for N(d1) and N(d2) in the case of the call, and N(-d1) and N(-d2) in the case of the put. Will the exam always provide N(d1) and N(d2) or do we need to know how to calculate them? Answer: That's a good point that BSM is simple except for the...
  5. G

    Will the exam provide N(d1) and N(d2) or do we need to calculate them?

    In reference to R27.P1.T4.Hull_Ch13_15_19:Topic: BLACK-SCHOLES-MERTON_MODEL :- In the exam, if we were to calculate the Call or Put Option prices using the BSM Model, would it be safe to assume that N(d1) & N(d2) would ALWAYS be provided given....? There are formulae to calculate the d1 and...
  6. F

    N(d1) and N(d2) in Merton Model

    Could some one explain to me how the N(d1) and N(d2) is computed in this question below? Let firm value (V) equal $1 billion with face value of debt (F) equal to $800 million. The debt is zero-coupon and matures in four years (T = 4.0). The riskless rate is 5.0%. The estimate of the volatility...
  7. N

    PQ-external BS model assumptions:

    Hi, Mr. Harper, again is me. :) The following question is about BS model: It ask "Which is an assumption of BSM model....." But I have checked the notes of book 1, none of them is an assumption of BSM model, am I right?:D
  8. Nicole Seaman

    P1.T4.413. Black-Scholes

    Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual...
  9. C

    Q37.3.4 - where do d1 and d2 values come from?

    in the solution it says, "since d1=1.25786...." Where do the d1 and d2 values come from? are they calculated using the formulas for d1 (page 54 of notes) and d2, and if so, what is the likelihood that is testable?
  10. sleepybird

    Understanding the relationship between Merton Probability of Default (PD) and the Black-Scholes Mode

    Below I am trying to show the relationship between Merton PD and the BSM. Merton PD = N[ -[ln(V/K)+(μ-0.5σ²)T]/σT ] The formula inside the bracket (let’s name it D2 since it) is very similar to the formula for d2 in the BSM for pricing call option: d2 = ln(S/X)+(r-0.5σ²)T]/σT So we have...
  11. H

    Black-Schoes d1 and d2 calculation

    Hello David, For the FRM exam, is it usually the case that we will be tested on the calculation of d1 and d2? Thanks!
  12. S

    Interpretation of N(d1) and N(d2)

    David: Is there is a straightforward "English language" interpretation for the BSM-related probabilities N(d1) and N(d2) -- for example, since N(d1) seems to be "linked" to S (current stock price) and N(d2) to the PV of the strike price, is there a simple way to understand the meaning of...