Lesson 1
Black-Scholes Formula Introduction
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Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options are not just for stocks; they are also important for other asset classes, such as real estate. Shiller, Robert J. ECON 252, Financial Markets (2008), Spring 2008. Yale OpenCourseWare: Economics, Accessed 25/9/14 http://oyc.yale.edu/economics/econ-252-08/lecture-23 License: Creative Commons BY-NC-SA


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