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  2. Binomial options pricing model - Wikipedia

    en.wikipedia.org/wiki/Binomial_options_pricing_model

    In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Essentially, the model uses a "discrete-time" ( lattice based ) model of the varying price over time of the underlying financial instrument, addressing cases where the closed-form Black–Scholes formula is wanting.

  3. Finite difference methods for option pricing - Wikipedia

    en.wikipedia.org/wiki/Finite_difference_methods...

    Finite difference methods were first applied to option pricing by Eduardo Schwartz in 1977. [2] [3]: 180 In general, finite difference methods are used to price options by approximating the (continuous-time) differential equation that describes how an option price evolves over time by a set of (discrete-time) difference equations.

  4. Lattice model (finance) - Wikipedia

    en.wikipedia.org/wiki/Lattice_model_(finance)

    The simplest lattice model is the binomial options pricing model; [7] the standard ("canonical" [8]) method is that proposed by Cox, Ross and Rubinstein (CRR) in 1979; see diagram for formulae. Over 20 other methods have been developed, [ 9 ] with each "derived under a variety of assumptions" as regards the development of the underlying's price ...

  5. How implied volatility works with options trading

    www.aol.com/finance/implied-volatility-works...

    To better understand how implied volatility impacts pricing, let’s consider a simple example. ... The most common option pricing model is the Black-Scholes model, though there are others, such ...

  6. Valuation of options - Wikipedia

    en.wikipedia.org/wiki/Valuation_of_options

    The valuation itself combines (1) a model of the behavior of the underlying price with (2) a mathematical method which returns the premium as a function of the assumed behavior. The models in (1) range from the (prototypical) Black–Scholes model for equities, to the Heath–Jarrow–Morton framework for interest rates, to the Heston model ...

  7. Black–Derman–Toy model - Wikipedia

    en.wikipedia.org/wiki/Black–Derman–Toy_model

    In mathematical finance, the Black–Derman–Toy model (BDT) is a popular short-rate model used in the pricing of bond options, swaptions and other interest rate derivatives; see Lattice model (finance) § Interest rate derivatives.

  8. Option (finance) - Wikipedia

    en.wikipedia.org/wiki/Option_(finance)

    The model starts with a binomial tree of discrete future possible underlying stock prices. By constructing a riskless portfolio of an option and stock (as in the Black–Scholes model) a simple formula can be used to find the option price at each node in the tree.

  9. Ho–Lee model - Wikipedia

    en.wikipedia.org/wiki/Ho–Lee_model

    In financial mathematics, the Ho-Lee model is a short-rate model widely used in the pricing of bond options, swaptions and other interest rate derivatives, and in modeling future interest rates. [1]: 381 It was developed in 1986 by Thomas Ho [2] and Sang Bin Lee. [3] Under this model, the short rate follows a normal process: