clarifying questions to reduce confusions in BS discussions

–At every mention of “pricing method”, ask

Q: Analytical (Ana) or Numerical (Num)?

Q: for European or American+exotic options?

Obviously Analytical methods only work for European style

Q: GBM assumption?

I think most numerical methods do. Every single method has severe

assumptions, so GBM is just one of them.

–At every mention of “Option”, ask

Q: European style of Amerian+Exotic style?

–At every mention of Black-Scholes, ask

Q: BS-E(quation) or BS-F(ormula) or BS-M(odel)?

Note numerical methods rely on BS-M or BS-E, not BS-F

–At every mention of Expectation, ask

Q: P-measure of Q-measure?

The other measures, like the T-fwd measure are too advanced, so no

need to worry for now.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s