Hello friends! Thank you so much for watching! I’ve only recently started on RUclips, and this is one of my first videos. I really hope you’ll find it interesting and somewhat entertaining. Please, please do subscribe to the channel - at this early stage, your support has a HUGE impact, and absolutely every person counts. I am doing this full-time now, and if you want to see how it goes, it would be great to have you on board! As always, feel free to reach out for any feedback, questions and suggestions. You can ping me on Twitter or via email in the channel description. Thank you for your help and support!
Have you seen the derivation via Wang's transform? I come from an insurance maths background and I found that the "easiest" for me. I've also see a good explanation based on option price : probability duality which was very intuitive
The proof is very intuitive. I recommend that you discuss why those terms like dt*dt and dt*dw tend to zero since they are infinitesimally small. It just helps people from non financial math background a bit more.
This is fantastic! Thanks for the clear indications about the assumptions on delta hedging and portfolio growth at risk-free rate, it made for a really easy to follow derivation
Great content, super clear! I hope you will make more videos! Why I think this is fantastic, is that it is intuitive, clear, step-for-step and yet concise.
I like that this video was a concise overview! It made everything connect! It complements the other videos that I saw where I got stuck in the weeds... which means I have a good understanding of the high-speed sections, but I still needed this overview to confirm all the math substitutions! Thanks!
9:20 "annnd, that's pretty much all you have to do" lol Loving your channel!! I know the basics of options, but you definitely make it easier to understand all these complicated things.
Great video as always. I’d be thrilled if you could elaborate more on option trading strategies that the cornwall capital turned 110k to 80MM from the big short. Apparently they relied heavily on the models and maximize the Convexity of option.
Amazing strating point thanks a lot. clarifies a lot ! The only thing that I think would be relevant to point out is that this is the Black Scholes Merton differential equation, not the Black Scholes formula: they are similar but serve different purposes. The black sholes formula is a closed-form solution derived from the BSM differential equation. Black Scholes Merton differential equation is used to calculate the fair value of European-style options and to determine the option's sensitivity to changes in various factors, such as the underlying asset price and time, while the Black Scholes formula provides a mathematical formula for calculating the theoretical price of a European-style call or put option. Thanks for the content!!
Hi there! This is great content and you have made it really easy to understand complex concepts. Could you make an episode to explain and demystify what exactly is a Partial Differential Equation (PDE) and how this is different from other types of models e.g. trees, monte carlo Thank you!
Hello, yes, of course, it's certainly something I could do. I am a bit short on time at the moment to film/present everything I want, but I've noted your request and will do my best. Thank you for watching this video!
I know it's been 2 years so you probably figured it out by now, but Khan Academy has an excellent playlist on multivariate calculus where you can find the relevant video for what a partial derivative is
Hi Sergey, great video. Thank you. Is there any way to visualize the formula in terms of graphs? So, to "play" around with different "parameters" and see the graphical output? Could you add or do that as sequel of this video using mathematica for example?
In this video, I'm discussing the Black-Scholes equation, which still needs to be solved to get an options' pricing formula. The Black-Scholes equation can be written in terms of Greeks: Theta + 1/2 * vol^2 * spot^2 * Gamma + rS * Delta - rV = 0. And you can visualise the Greeks via a simple Black Scholes calculator. Unfortunately, I can't give you a link, since RUclips hides comments with links, but google "perfiliev financial black scholes" and check out the first link!
Hi Sergei! I have a question. Is there an intuitive reason explaining why dt*dw=0 dt*dt=0 and dW*dW=dt? Why the uncertain factor in the price model is dropped when it is plugged in the BS model? Is it the direct consequence of the hedging? Thank you very much
Hey found you on Twitter and love the videos Will you provide any practical examples in the future? EG Using these equations to construct a hypothetical neutral portfolio of apple
Hey Christopher, thank you for watching the videos! Glad you liked them :) Yeah, this one was a purely theoretical video - I'll try to do more practical stuff in the future if time allows. Thanks again!
My major is civil engineering, and I also learned about stokes theorem. It’s look similar as Brownian motion is that I first impressive part. And second is that I listened your lecture from 0 to end. But I don’t have any idea about how to treat my stock portfolio 😅😅
Video is short and To the point and i really like it though, looking for more practical content . But there certain topic which people should be comfortable with, stochastic calculus and stats , . Im sure these prerequisite would be handy . For further topics .
Most intuitive trading view is the one you presented ! Some people like to say the discounted option price is a martingale, then apply Ito to it and say the drift is 0, but that’s too abstract vs this one ! Great content man !
Hi Mohd, thank you. Yeah, I see what you mean - it is indeed just theory. I'll probably do a few of these at the start, as I experiment with different topics/subjects. Hopefully will have more practical stuff later on too! Thanks for watching! :)
@@leoafrifanus Thank you, glad you like it! :) Yeah, hahaha, I know that derivation and it is too abstract indeed (especially if one doesn't know much about martingales or risk-neutral expectations etc)...
Hmmm..... d2S technically is not a "square" of the dS, but rather a second differential, thus the issue here is how to treat a differential of the stochastic process W. I understand that you tried to simplify the process, but omitting several important math steps in understanding this equation, led LTCM to its demise. But I enjoyed your way of presenting this very important, but complex equation. BTW, this equation is very well known in Theoretical Physics as the Fokker-Plank equation. Cheers!
Hi Sergey, thank you for your feedback and insights! Indeed, I haven't noticed I called the second derivative a "square" :) That would be a video-level typo :) Thank you!
Thank you for watching the videos! I'd have to dig into that a bit more, to come up with a good explanation. If time allows, I'll try to get into it. Thank you!
Hey, ya silverback s twitter: great video! Some 'comments' (lol), or rather tiny points that *maybe* might help: - title of the video will turn some people off. Why not something like "... intuition behind the BS formula" etc. 'Derive' is scary for some people... actually thinking about this now, unless you are splitting your content between more technical and more intuitive, etc. --> in that case cool, you can just put relevant videos in a playlist - have you / will you do a binomial option pricing? if you have, apologies, been swamped so am catching up on good channels - ^^ same for no-arbitrage bounds --> that's a really easy intro to all of this; P-C parity? - Idea: create a quick XLS template to calculate this and let people follow along?
Hey Nick! Great to see you here! :) These are some great suggestions, thank you so much! - Title + thumbnails - I am trying to improve on those and make them less "scary". - Playlist - yes, as soon as I add a few more videos in a similar genre, I'll start grouping them into playlists. - Binomial model - funny you should mention it, as I did it alongside this video. Thanks for the other suggestions! Much appreciated!
That was some reallyy dope explanation ! Can you derive it into the formulae which they give for N(d1) and N(d2) .It'd really help if you put more videos on stochastic calculus and stuff too ! Thank you so much !
Great video.. Can u just give an example with market datas on how it actually works as a risk free model by choosing and stock and it's underlying option?
The best way to derive a premium formula for an option is how I do it (and recommend others do also), and this is not the Black-Scholes formula: The Black and Scholes equation is wrong: The Black and Scholes (risk-neutral) premium is the first moment of the option expiry for an asset that has all risk and no market return (the risk-neutral measure), that which has been debased of market return (by holding portfolio returns fixed flat at r). This idiotic asset (the risk-neutral measure) is stochastically dominated by bonds in that bonds have the same return (r) but without the risk whilst it is stochastically dominated by stocks since stocks earn market return for the equivalent amount of risk: bonds have LOWER RISK for the SAME RETURN as the debased market asset (the risk-neutral measure) whilst stocks have HIGHER RETURN for the SAME RISK as the debased market asset (the risk-neutral measure) Either way, the 'risk-neutral measure' is totally idiotic and stochastically dominated by all non-redundant asset classes. It is not deep and it is not abstract. All it is is the market asset without return (which is then used to price the derivative and so is wrong and inaccurate). If a trader wants an option, then he must not take an offsetting position that nullifies the option position. There is nothing risk-neutral about that. An option premium must have a mean mu in the drift term, otherwise it is wrong... wrong for derivatives and wrong for efficient and non-communist finance. nb: I had to say 'no risk' when I sat several of the courses in undergraduate (almost two decades ago). It was clear as day to me then that it was inaccurate (and proved by me definitively now more than one decade ago). I debunk Black and Scholes fully here: drive.google.com/file/d/1drOy89roxTawddpbFv03MEgrNSRwPRab/view?usp=drive_link here is new theory for markets (crystal ball formula): drive.google.com/file/d/1POgaFZxaXpGPbxDh8p9IHP_Kr2-VXok5/view?usp=drive_link PhD examiner report 3: drive.google.com/file/d/1z2Cflnp1uQ059GIonv2lzfqOj0EcMXrv/view?usp=drive_link PhD examiner report 2: drive.google.com/file/d/1K07G377R0ZSUs9ax6EXAzYealrjbo2vS/view?usp=drive_link PhD examiner report 1: drive.google.com/file/d/1BXwbk-uFrQDH_es_T5FiIJOnJ_42oA0q/view?usp=drive_link
Hello friends! Thank you so much for watching! I’ve only recently started on RUclips, and this is one of my first videos. I really hope you’ll find it interesting and somewhat entertaining. Please, please do subscribe to the channel - at this early stage, your support has a HUGE impact, and absolutely every person counts. I am doing this full-time now, and if you want to see how it goes, it would be great to have you on board! As always, feel free to reach out for any feedback, questions and suggestions. You can ping me on Twitter or via email in the channel description. Thank you for your help and support!
Have you seen the derivation via Wang's transform? I come from an insurance maths background and I found that the "easiest" for me. I've also see a good explanation based on option price : probability duality which was very intuitive
"This is left as an exercise for the reader". Oh lord. It's my math classes all over again.
Hahaha, sorry for the flashback :) I also couldn't stand it when math textbooks did that!
This is actually the best explained derivation I've found on RUclips so far. Thank you so much!
The proof is very intuitive. I recommend that you discuss why those terms like dt*dt and dt*dw tend to zero since they are infinitesimally small. It just helps people from non financial math background a bit more.
insanely high efficiency. Thank you for the great work
This is awesome. I'm probably going to watch it a few times to get comfortable with all the material. Thanks for the knowledge!
Thank you for watching! If anything's unclear or confusing, feel free to let me know - would be happy to help out!
This is fantastic! Thanks for the clear indications about the assumptions on delta hedging and portfolio growth at risk-free rate, it made for a really easy to follow derivation
This is absolutely this best video for BSM! And the explanation is much easier to understand than the green book Thx
This is awesone! Thank you Perfiliev!
This was the best math lesson! You have a love for teaching and made it easy to understand. Looking forward to more of the same!
Hi Lexi, thank you so much for your kind words! I'm really glad to hear it was easy to understand :) Thank you!
Great content, super clear! I hope you will make more videos! Why I think this is fantastic, is that it is intuitive, clear, step-for-step and yet concise.
Another incredible video! Cannot wait for the next one :)
Thanks so much for watching! Glad you're finding it useful :)
I like that this video was a concise overview! It made everything connect! It complements the other videos that I saw where I got stuck in the weeds... which means I have a good understanding of the high-speed sections, but I still needed this overview to confirm all the math substitutions! Thanks!
Brings back memories of Dif EQ class! I would have learned alot more with you as a professor.
Much appreciated, thank you for your kind words!
Thank you for your work!! :D
Awesome work, thank you !
The explanations are so clear, thank you so much for this video!
Perfect!! looking for more content like this!
Thank you! :) Will do my best.
Keep it going, loving the content
Hey Riccardo, thanks so much! Glad you're enjoying it :)
9:20 "annnd, that's pretty much all you have to do" lol
Loving your channel!! I know the basics of options, but you definitely make it easier to understand all these complicated things.
Hi, thank you so much for watching the video! Glad it was useful :)
AMAIZING EXPLANATION FINALLY I UNDERSTAND IT. THANKS
So easy and clear to understand
Thank you!!
You're much better than my lecturer and I have to pay for it.
Thanks Sergei... I really liked the video
Hi Nikolay, thank you so much!
Great video as always. I’d be thrilled if you could elaborate more on option trading strategies that the cornwall capital turned 110k to 80MM from the big short. Apparently they relied heavily on the models and maximize the Convexity of option.
Hi Harry, that's an interesting story! Haven't heard of it, thank you. If time permits, I'll try to check it out! Thanks for watching! :)
Thanks bro.
Damn this is like Sheldon Cooper level shit. Awesome explanation 😃
Hahaha, thank you so much for watching and for your feedback! :) Really glad it was useful :) All the best!
Thank you so much!
No worries, thank you!
Gracias!
Amazing Chanel! Hello from Brazil!
Hey, Diego! Thank you for subscribing! Hello to you too! :)
Awesome video. Thanks :)
My pleasure, thank you!
Amazing strating point thanks a lot. clarifies a lot !
The only thing that I think would be relevant to point out is that this is the Black Scholes Merton differential equation, not the Black Scholes formula: they are similar but serve different purposes.
The black sholes formula is a closed-form solution derived from the BSM differential equation.
Black Scholes Merton differential equation is used to calculate the fair value of European-style options and to determine the option's sensitivity to changes in various factors, such as the underlying asset price and time, while the Black Scholes formula provides a mathematical formula for calculating the theoretical price of a European-style call or put option.
Thanks for the content!!
Thanks a lot buddy !!
Thank you for watching!
Really good explanation. Thanks for doing this!
My pleasure! Thanks for watching.
fantastic
Thanks, Vijay!
Hi there!
This is great content and you have made it really easy to understand complex concepts.
Could you make an episode to explain and demystify what exactly is a Partial Differential Equation (PDE) and how this is different from other types of models e.g. trees, monte carlo
Thank you!
Hello, yes, of course, it's certainly something I could do. I am a bit short on time at the moment to film/present everything I want, but I've noted your request and will do my best. Thank you for watching this video!
I know it's been 2 years so you probably figured it out by now, but Khan Academy has an excellent playlist on multivariate calculus where you can find the relevant video for what a partial derivative is
Very well explained. Are you an actuary?
great stuff " )
Hi Sergey, great video. Thank you. Is there any way to visualize the formula in terms of graphs? So, to "play" around with different "parameters" and see the graphical output? Could you add or do that as sequel of this video using mathematica for example?
In this video, I'm discussing the Black-Scholes equation, which still needs to be solved to get an options' pricing formula. The Black-Scholes equation can be written in terms of Greeks: Theta + 1/2 * vol^2 * spot^2 * Gamma + rS * Delta - rV = 0. And you can visualise the Greeks via a simple Black Scholes calculator. Unfortunately, I can't give you a link, since RUclips hides comments with links, but google "perfiliev financial black scholes" and check out the first link!
@@PerfilievFinancialTraining Thanks a lot.
Btw, it can be done in Mathematica as well.
@@ttwtrader Definitely! To be honest, even a simple Excel sheet can do :)
Hi Sergei! I have a question. Is there an intuitive reason explaining why dt*dw=0 dt*dt=0 and dW*dW=dt? Why the uncertain factor in the price model is dropped when it is plugged in the BS model? Is it the direct consequence of the hedging? Thank you very much
Hey found you on Twitter and love the videos
Will you provide any practical examples in the future? EG Using these equations to construct a hypothetical neutral portfolio of apple
Hey Christopher, thank you for watching the videos! Glad you liked them :) Yeah, this one was a purely theoretical video - I'll try to do more practical stuff in the future if time allows. Thanks again!
Hello,I need help on linear fractional black-scholes model.
My major is civil engineering, and I also learned about stokes theorem. It’s look similar as Brownian motion is that I first impressive part. And second is that I listened your lecture from 0 to end. But I don’t have any idea about how to treat my stock portfolio 😅😅
OMG HAHAHAHAHAHAHAA thank you so so much for this simpler equation. Its so hard to understand the one from the textbook. thank you sir!
😁
Sir, what are you selling and how can I buy it?
Hi Miquel! Thank you so much for your support! At the moment, I don't have much to offer, but I will let you know as soon as I do :)
Video is short and To the point and i really like it though, looking for more practical content .
But there certain topic which people should be comfortable with, stochastic calculus and stats , . Im sure these prerequisite would be handy . For further topics .
Most intuitive trading view is the one you presented ! Some people like to say the discounted option price is a martingale, then apply Ito to it and say the drift is 0, but that’s too abstract vs this one ! Great content man !
Hi Mohd, thank you. Yeah, I see what you mean - it is indeed just theory. I'll probably do a few of these at the start, as I experiment with different topics/subjects. Hopefully will have more practical stuff later on too! Thanks for watching! :)
@@leoafrifanus Thank you, glad you like it! :) Yeah, hahaha, I know that derivation and it is too abstract indeed (especially if one doesn't know much about martingales or risk-neutral expectations etc)...
Hmmm..... d2S technically is not a "square" of the dS, but rather a second differential, thus the issue here is how to treat a differential of the stochastic process W. I understand that you tried to simplify the process, but omitting several important math steps in understanding this equation, led LTCM to its demise. But I enjoyed your way of presenting this very important, but complex equation. BTW, this equation is very well known in Theoretical Physics as the Fokker-Plank equation. Cheers!
Hi Sergey, thank you for your feedback and insights! Indeed, I haven't noticed I called the second derivative a "square" :) That would be a video-level typo :) Thank you!
Awsome! Can you explain how Cem get his levels?
Thank you for watching the videos! I'd have to dig into that a bit more, to come up with a good explanation. If time allows, I'll try to get into it. Thank you!
@@PerfilievFinancialTraining thank you for your reply!
This is the Magnum Opus of Black Scholes explanation videos
Hey, ya silverback s twitter: great video! Some 'comments' (lol), or rather tiny points that *maybe* might help:
- title of the video will turn some people off. Why not something like "... intuition behind the BS formula" etc. 'Derive' is scary for some people... actually thinking about this now, unless you are splitting your content between more technical and more intuitive, etc. --> in that case cool, you can just put relevant videos in a playlist
- have you / will you do a binomial option pricing? if you have, apologies, been swamped so am catching up on good channels
- ^^ same for no-arbitrage bounds --> that's a really easy intro to all of this; P-C parity?
- Idea: create a quick XLS template to calculate this and let people follow along?
Hey Nick! Great to see you here! :) These are some great suggestions, thank you so much!
- Title + thumbnails - I am trying to improve on those and make them less "scary".
- Playlist - yes, as soon as I add a few more videos in a similar genre, I'll start grouping them into playlists.
- Binomial model - funny you should mention it, as I did it alongside this video.
Thanks for the other suggestions! Much appreciated!
Ill just use a bs calc thx
I knew I’m a 100% nerd when I thoroughly enjoyed going through all the math 🧮
That was some reallyy dope explanation ! Can you derive it into the formulae which they give for N(d1) and N(d2) .It'd really help if you put more videos on stochastic calculus and stuff too !
Thank you so much !
If it is risk free, then how did people use this knowledge to beat the markets?
Great video.. Can u just give an example with market datas on how it actually works as a risk free model by choosing and stock and it's underlying option?
Please!! We want the martingale approach!!
Hi Ferran, hahaha :) I think that would take us all the way to the solution and not just the BS PDE, right?
The best way to derive a premium formula for an option is how I do it (and recommend others do also), and this is not the Black-Scholes formula:
The Black and Scholes equation is wrong: The Black and Scholes (risk-neutral) premium is the first moment of the option expiry for an asset that has all risk and no market return (the risk-neutral measure), that which has been debased of market return (by holding portfolio returns fixed flat at r). This idiotic asset (the risk-neutral measure) is stochastically dominated by bonds in that bonds have the same return (r) but without the risk whilst it is stochastically dominated by stocks since stocks earn market return for the equivalent amount of risk:
bonds have LOWER RISK for the SAME RETURN as the debased market asset (the risk-neutral measure)
whilst
stocks have HIGHER RETURN for the SAME RISK as the debased market asset (the risk-neutral measure)
Either way, the 'risk-neutral measure' is totally idiotic and stochastically dominated by all non-redundant asset classes. It is not deep and it is not abstract. All it is is the market asset without return (which is then used to price the derivative and so is wrong and inaccurate).
If a trader wants an option, then he must not take an offsetting position that nullifies the option position. There is nothing risk-neutral about that. An option premium must have a mean mu in the drift term, otherwise it is wrong... wrong for derivatives and wrong for efficient and non-communist finance.
nb: I had to say 'no risk' when I sat several of the courses in undergraduate (almost two decades ago). It was clear as day to me then that it was inaccurate (and proved by me definitively now more than one decade ago).
I debunk Black and Scholes fully here: drive.google.com/file/d/1drOy89roxTawddpbFv03MEgrNSRwPRab/view?usp=drive_link
here is new theory for markets (crystal ball formula): drive.google.com/file/d/1POgaFZxaXpGPbxDh8p9IHP_Kr2-VXok5/view?usp=drive_link
PhD examiner report 3: drive.google.com/file/d/1z2Cflnp1uQ059GIonv2lzfqOj0EcMXrv/view?usp=drive_link
PhD examiner report 2: drive.google.com/file/d/1K07G377R0ZSUs9ax6EXAzYealrjbo2vS/view?usp=drive_link
PhD examiner report 1: drive.google.com/file/d/1BXwbk-uFrQDH_es_T5FiIJOnJ_42oA0q/view?usp=drive_link
zhins
"easiest"
Hahaha, as easy as it can be :) But yes, I agree, even this method is based on some relatively complex mathematical concepts.
Guys are we in heaven?
:)