Calculus Options Pricing Model
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Experience Level: Expert
Estimated project duration: Not sure
The following is the content in the Markov Tree attached document
I have attached a paper on options pricing. We think the model may have some application to our
business. After reading the paper we think the model we want to use starts at the top of page 52 Item #
4.2.3.
1. Make a quick review of the paper and make sure this is the model that they are using in their
research as noted above it appears at the top of page 52 Item # 4.2.3
2. Options pricing models require variable inputs
1. Stock Price
2. Strike Price
3. Risk Free Interest Rate
4. Time To Expiration
5. Volatility
6. Call or Put
3. Establish that these are the inputs that this model requires
4. If this is determined to be the correct model and the inputs are as described then enter this
model into an Excel spread sheet that would create a simple options calculator
5. Options calculator would allow for the input of the above variables
6. The option calculator would also generate the following values
1. Value of the option Call or Put
2. Delta: First derivative with respect to price
3. Gamma: Second derivative with respect to price
4. Theta: First derivative with respect to time
5. Sigma: First derivative with respect to volatility
7. The calculator should work in a way that would always require the entry of
1. Stock Price
2. Strike Price
3. Risk Free Interest Rate
4. Time To Expiration
1. Then it would allow for entry of either the Volatility or the Option Price
2. This feature would allow for the determination of what is know as the Implied Volatility
rather than solve for the value of the option, which would be provided, it would solve
for the Volatility
I have attached a paper on options pricing. We think the model may have some application to our
business. After reading the paper we think the model we want to use starts at the top of page 52 Item #
4.2.3.
1. Make a quick review of the paper and make sure this is the model that they are using in their
research as noted above it appears at the top of page 52 Item # 4.2.3
2. Options pricing models require variable inputs
1. Stock Price
2. Strike Price
3. Risk Free Interest Rate
4. Time To Expiration
5. Volatility
6. Call or Put
3. Establish that these are the inputs that this model requires
4. If this is determined to be the correct model and the inputs are as described then enter this
model into an Excel spread sheet that would create a simple options calculator
5. Options calculator would allow for the input of the above variables
6. The option calculator would also generate the following values
1. Value of the option Call or Put
2. Delta: First derivative with respect to price
3. Gamma: Second derivative with respect to price
4. Theta: First derivative with respect to time
5. Sigma: First derivative with respect to volatility
7. The calculator should work in a way that would always require the entry of
1. Stock Price
2. Strike Price
3. Risk Free Interest Rate
4. Time To Expiration
1. Then it would allow for entry of either the Volatility or the Option Price
2. This feature would allow for the determination of what is know as the Implied Volatility
rather than solve for the value of the option, which would be provided, it would solve
for the Volatility
Michael S.
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