Option pricing path
From discounting to the Black–Scholes formula and Monte Carlo, in 22 steps. The steps build toward option pricing in order. Some also use math from outside the path; each lesson lists its prerequisites and starts with a short check and refresher.
Steps open so far: 13 of 22
- 1Compounding and discountingInterest rates
- 2Option payoffs and put-call parityOptions
- 3Forward prices by cash-and-carryForwards
- 4Pricing by replication: one periodBinomial model
- 5State prices and no-arbitrageArbitrage theory
- 6Backward induction on a binomial treeBinomial model
- 7When early exercise paysAmerican options
- 8No-arbitrage bounds on option pricesOptions
- 9From random walk to Brownian motionStochastic processes
- 10Quadratic variation and (dW)² = dtStochastic processes
- 11MartingalesStochastic processes
- 12The Itô integralStochastic calculus
- 13Itô's lemmaComing
- 14Geometric Brownian motionComing
- 15Self-financing strategiesComing
- 16Delta hedging and the Black–Scholes PDEOption pricing
- 17Discounted prices are martingales under QComing
- 18The Black–Scholes formula and binomial convergenceComing
- 19The GreeksComing
- 20Barrier optionsComing
- 21Discrete hedging error and implied volatilityComing
- 22Monte Carlo option pricingComing