The
theoretical option pricing models are used by option traders for calculating
the fair value of an option on the basis of the earlier mentioned (Quantifiable
Factors and Non Quantifiable Factors) influencing factors.
The 2
most popular option pricing models are..
1.
Black Scholes Mode
2.
Binomial Model
Black
Scholes Model
which assumes that percentage change in the price of underlying follows a
lognormal distribution.
Binomial Model which assumes that percentage change in price of the
underlying follows a binomial distribution.
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