Latest Posts

black scholes - how to calculate implied volatility

Yes. You should use that function to calculate the implied volatility - market convention is to always quote implied volatility using the Black-Scholes model. Traders may execute a trade simply by ag... Read More

risk - Credit VaR Formula

Here is the excel formula with steps: =NORMSDIST((NORMSINV(0.02)+NORMSINV(0.999)×SQRT(0.1))/SQRT(1−0.1)) =NORMSDIST((−2.054+3.09×SQRT(0.1))/SQRT(1−0.1)) =NORMSDIST(-1.135) =12.8% They keep changing t... Read More

equities - Stock price value as a continuous-time stochastic process

Yes and no. Clearly, stock prices (or prices of any asset) are not observed continuously. This applies to both, the value (price) dimension and the time dimension. This however does not mean that we... Read More

options - Risk Neutral Pricing and the Drift

You can compute expectation of drifted processes as well and derive same pricing formulas,but usually its more complicated (compare derivation of Black Scholes using martinglaes and through PDE. PDE... Read More

black scholes - how does stochastic volatility models generate smiles?

Nevermind, i'm just confusing myself. Now I understand what I misunderstood. The implied volatility surface of a prices of calls generated by a stochastic volatility model will not be constant since... Read More