What are the different options pricing models?

What are the different options pricing models?

There are several options pricing models, including the Black-Scholes model, Binomial model, and Monte Carlo simulation. Would you like to know more about a specific one?

Can you explain the Black-Scholes model?

The Black-Scholes model calculates the theoretical price of European-style options. It considers factors like the stock price, strike price, time to expiration, risk-free interest rate, and volatility.

What are the assumptions behind the Black-Scholes model?

The main assumptions include constant volatility, no dividends, efficient markets, and that the option can only be exercised at expiration.

How does the Binomial model differ from Black-Scholes?

The Binomial model uses a discrete time framework and allows for multiple periods, making it more flexible for American options, which can be exercised before expiration.