19. Black-Scholes Formula, Risk-neutral Valuation

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  • Опубликовано: 7 сен 2024

Комментарии • 90

  • @SeikoVanPaath
    @SeikoVanPaath 4 года назад +83

    Some notable Timestamps:
    03:49 Risk Neutral Valuation: Introduction
    11:02 Binomial Tree example & Replicating Portfolio
    22:32 Black-Scholes equation
    33:33 Black-Scholes: Risk Neutral Valuation
    36:06 Concluding example

  • @ahmadbittar4618
    @ahmadbittar4618 3 года назад +42

    His presentation is actually very clear and I love the examples he has given. So I don't know why there are a lot of bad comments. Thank you MIT for sharing this.

    • @franco521
      @franco521 3 года назад +7

      I doubt that. I've just started and the 2-horse example is unclear. For example, the slide does not say how much guy gets if the second horse wins, only how much guy loses if the second horse loses.

    • @nelsonmorrow5657
      @nelsonmorrow5657 Год назад +1

      If horse A wins in that example for the 4 to 1 payout the bookie must pay 10,000 + 4(1,000)=$50,000 => bookie profits $10k because he had $60k in bets total
      horse B wins with the 4:1 payout he loses $2,500 because he has to pay the better with a $50k bet 50,000(1.25)=$62,500 so he loses $62,500-$60,000=$2,500
      He kinda went through it fast but the logic is clear

    • @DK-hw6xs
      @DK-hw6xs 7 месяцев назад

      ​@nelsonmorrow5657 Im confused wouldn't it be...If A wins 4*10k+10k -50k = 0 and If B wins 50K/4 -10k =2500?

  • @jdsherri
    @jdsherri 4 года назад +79

    A very common problem in academic lecture videos, unfortunately, is that the camera is more often on the speaker and not on the material.

    • @micel99
      @micel99 3 года назад +2

      I would pause at the slides to digest them before moving on.

    • @Jaymz937
      @Jaymz937 2 года назад +4

      I'm late, but most of these videos have the lecture notes and slides at the website in the description. It has the syllabus and even the book they are teaching from as well.

  • @fatinainaaazni7180
    @fatinainaaazni7180 4 года назад +12

    22:28 Black-Scholes equation

  • @user-zx8db8sf2t
    @user-zx8db8sf2t 3 года назад +5

    “If you put $1 into cambridge bank then in a year you get nothing be ause rates are basically zero” hahaha best comedy ever

  • @varo09111991
    @varo09111991 4 года назад +50

    The short story is that not even the MIT can come up with good teachers for this stuff: those who know, don't tell, and those who tell, don't know.

    • @kaiwang2924
      @kaiwang2924 Год назад +4

      Finally some kids brave enough to say that "the king is naked".

    • @Sup3rB4dVideos
      @Sup3rB4dVideos 8 месяцев назад +2

      What are you talking about. He explained it perfectly. It's a simple formula to create a price based on market transactions to forever sell derivative products for no risk.

    • @firsargentum5920
      @firsargentum5920 5 месяцев назад +1

      I thought he explained it fairly well bar a few details I need to rewatch and I'm not versed in this stuff. I think it helps to look at it from the p.o.v. of a broker needing to set prices for derivatives such that they (the broker) bears none of the risk of the underlying asset, rather than the p.o.v. of Joe Bloggs the punter looking to profit from a trade. In the base case, the broker makes their money from a fee so don't care how the the underlying asset performs; therefore this Black-Scholes analysis solves a big problem for them. The fees are just excluded from the calculations he shows for simplicity since they would add another small term in the equations to be manipulated.

    • @hectoralvarez5705
      @hectoralvarez5705 27 дней назад

      It’s crazy to think how much this lecture would cost in tuition compared to a free RUclips channel like inthemoneyadam. When a RUclipsr in his 20’s can break things down in a more organized and consumable manner than someone with a PHD charging inhuman amounts of money…

  • @castafinance
    @castafinance 11 месяцев назад +1

    The phone he whipped out startled me

  • @fiendi2n38r82
    @fiendi2n38r82 4 года назад +5

    He switched the signals on the call put parity formula. Good class besides that

  • @xh3992
    @xh3992 5 лет назад +4

    i think he explained the concept very well with some .business insights. I am happy

  • @angeloc700
    @angeloc700 3 года назад +14

    5% implied on the forward...ah, the good old days!

  • @jdsherri
    @jdsherri 4 года назад +7

    absolutely awesome at 1.75 replay speed, but not at examples

  • @davidmorgan1038
    @davidmorgan1038 Год назад +1

    Bonds… looking into bonds… AMC/BBBY.. just seems like the next logical addition

  • @lorenzo-llm
    @lorenzo-llm Год назад +2

    what a world we live in right now ... interest rate Nov 2022 ...

  • @user-or7ji5hv8y
    @user-or7ji5hv8y 3 года назад +1

    This is also a very good presentation.

  • @forheuristiclifeksh7836
    @forheuristiclifeksh7836 2 месяца назад +1

    29:49 Blacksholes eq

  • @johnvonhorn2942
    @johnvonhorn2942 5 лет назад +4

    Great lecture, thank you Vasily

  • @norayrhayruni2622
    @norayrhayruni2622 3 года назад +5

    6.57: 'Call option can be viewed as an insurance against the asset going down'. BUT If the value goes down you would not exercise your option, since you would not be willing to buy it at a predetermined 'higher' price than what is now in the market. I believe the put option can be viewed as an insurance!

    • @nmns3950
      @nmns3950 2 года назад

      Call option is the insurance against the price going up, you want to buy the underlying at the cheaper price even if it moves way higher,
      Put option is insurance against the asset going down, you want to sell it to highest bidder, so that you don't loose money

    • @chehakchandalia5257
      @chehakchandalia5257 Год назад

      Insurance with respect to Call options is only relevant for American options, since they have an opportunity cost assigned to the time you chose to exercise the option. It is generally suggested in case of a non-dividend paying stock to exercise the American Call option at expiry due to the time value of money. With American Put options, insurance is relevant because the optimal time to exercise the option is before the expiry date. The insurance is offered against price rise by call options and against the price falls by put options, but only for the American ones. This feature is of not of major importance when talking about European options.

  • @samsontsui7051
    @samsontsui7051 8 лет назад +19

    6:50 "call option can be viewed as insurance against price going down." A insurance against price going down is called PUT.

    • @renef7083
      @renef7083 8 лет назад +17

      +Samson Tsui Call option can be seen as insurance against price drop compares to actually long the stock. With call option your loss would be limited.

    • @jivillain
      @jivillain 4 года назад

      rene f are you serious? How?

    • @budfox9934
      @budfox9934 3 года назад +1

      @@jivillain bear in mind that Put + long stock = Call. So if you are already long the stock and you are looking for an insurance against price drop... you have to buy a put indeed. But if you want to invest on a stock with the protection, you can directly buy the call since its equivalent to stock+put.

  • @edwinthomasr
    @edwinthomasr 4 года назад +13

    The beyonce-knowles equation has helped me earn dozens of dollars on the options playing feild!!

    • @studiousguy8138
      @studiousguy8138 4 года назад +8

      I couldn't find much about it on Google. Can you provide a link and/or brief summary?

    • @nazmul_khan_
      @nazmul_khan_ 4 года назад +3

      Lol....

    • @franco521
      @franco521 3 года назад

      @Nick de windt😂😂😂😂😂😂😂

  • @YouTubeFunHandle
    @YouTubeFunHandle 7 месяцев назад +4

    Many years later, the historians will write: “ long time ago, humans were obsessed with the money system they created that so many brilliant minds wasted their life on.”

  • @repsieximo
    @repsieximo 8 лет назад +10

    @38:20

  • @barackhussainobama7336
    @barackhussainobama7336 5 лет назад +6

    Hello

  • @gerardomoscatelli8584
    @gerardomoscatelli8584 4 года назад +13

    Excellent theoretical explanation for MIT students. Now let's do it in the real world with Federal Reserve and Central Banks saving the stock market forever "whatever it takes" (implicit PUT free option in the market) + negative interest rates. Welcome to the real Finance in Wonderland world kids :)

    • @YOTUBE8848
      @YOTUBE8848 4 года назад +2

      *this didn't age well with coronavirus impacting the economy and rendering "powers-that-be" powerless.*

    • @zkkrhfhska
      @zkkrhfhska 3 года назад +2

      Thanks for admitting you don't understand change of measure I guess?

    • @CaliforniaWaffle
      @CaliforniaWaffle 2 года назад +1

      This did not age well? Idk lol

  • @RRRRobbbb
    @RRRRobbbb 4 года назад +21

    In Soviet Russia, underlying puts you!

    • @al97093
      @al97093 3 года назад +2

      And it does not CALL you, so no warning.

  • @lazywarrior
    @lazywarrior Год назад +2

    Don't be so harsh on him. He is just a guest lecturer from Stanley, not an educator of any sort. Lower your bars please.

  • @saintelohim
    @saintelohim 4 года назад +5

    Why is this video short compare to other videos in this series? Also 43:06, the signs of the put-call parity equation needs to be adjusted.

    • @Jan-ot7ww
      @Jan-ot7ww Год назад

      c + Ke^-rt = p + S mate

  • @user-ok4wr4zm5i
    @user-ok4wr4zm5i 2 года назад +2

    4*10000 -5000 =-10000 50000*1/4 -1000 =2500

  • @franco521
    @franco521 3 года назад +6

    2-Horse race example is unclear. The outcomes are poorly explained.
    Edit: After struggling for a few minutes to follow his calculation of payout in the first example, I decided to skip this video.

  • @leivonghliu140
    @leivonghliu140 5 лет назад +3

    guys... show some respect

    • @peaceonearth8693
      @peaceonearth8693 4 года назад +1

      Math is more of a merit based honor system. Just in case your bias is from a culture that respects teachers automatically. His was a nice yet impractical exercise, delivered with a distracting accent.
      If Black-Scholes based on European option design was of much use. Everyone would be wealthy. Actually, this was a complicated exercise but aimed in the wrong direction for the problem that the title alludes to. One point that he omitted, was explaining the different versions that are in use by companies, of the Beta Greek.

  • @NGHVEVO
    @NGHVEVO Год назад +1

    I don't subscribe to the idea that it was a clear explanation. He's clearly talented, but his explanation simply was not clear. Put-Call parity shouldn't require such rigour. It's can be easily explained with no need for such abstraction...

  • @NbyD
    @NbyD 2 года назад

    wish the camera would stay on the slides rather than following the lecturer for a good fraction of the time.

  • @famir47
    @famir47 3 года назад

    9:14, Is that graph right? Why would the blue line go below the pink?

    • @alijhi
      @alijhi 2 года назад

      Good point. The only way to get the blue line below the pink line is to have a EUROPEAN put (can't exercise) and insanely high interest rates such that your option is worth discounted parity.

  • @kanchanwani4940
    @kanchanwani4940 8 лет назад +13

    He looks a lot like marshal from How I met your mother

  • @elissonandrade9422
    @elissonandrade9422 7 месяцев назад

    Algorithomers sones plus formulares xser pisilon formulare strutarasters for in prol dell concienters plus mans

  • @user-ok4wr4zm5i
    @user-ok4wr4zm5i 2 года назад

    it's the other way around

  • @davidmorgan1038
    @davidmorgan1038 Год назад

    39:31

  • @timzheng5913
    @timzheng5913 7 лет назад +1

    Why dB=rBdt?

    • @jianweng3463
      @jianweng3463 7 лет назад +11

      if you agree with the continuous compounding equation B=Bo * e^(rt), then dB/dt = r* Bo*e^(rt) = rB. rearrange the equation gives you dB = rBdt

    • @kellybrower301
      @kellybrower301 3 года назад

      @@jianweng3463 thanks!

  • @jdsherri
    @jdsherri 4 года назад

    Not a basic course on BSF - с первого разy бы не поняла.

  • @alijhi
    @alijhi 2 года назад

    This is riddled with errors. I am disappoint. Expiry time is the pink line for starters...

  • @yifanliu2613
    @yifanliu2613 9 лет назад +44

    this guy apparently is not a real teacher..

    • @scottab140
      @scottab140 9 лет назад +18

      Yifan Liu True, but he has world experience that is better than an academic teacher. Dr. Vasily Strela, Dissertation: Multiwavelets -- Theory and Applications, is a Research Affiliate in the MIT Department of Mathematics. He is also a Managing Director and the Global Head of Fixed Income Modeling at Morgan Stanley.

    • @richardfoster2459
      @richardfoster2459 8 лет назад +21

      I miss Choonbum Lee

    • @juliocorral3894
      @juliocorral3894 3 года назад +1

      Fixed income modeling...now I understand why he sounded depressed after explaining the dollar invested at Cambridge savings bank is a dollar a year later, and didn't have to explain inflation to that crowd. Selling something you don't believe in, can be depressing. @@scottab140

  • @danny-bw8tu
    @danny-bw8tu 6 лет назад +1

    i wish i learned finanace in my earlier years, fuck .......

  • @jinshuenjameslo9647
    @jinshuenjameslo9647 Год назад

    Instructor is certainly a smart guys who speaks full of fancy terms. You may need to study this topic before to connect to those finance English. Generally not a good lecture by explanation replying too much on slideshow as pointing fingers at part of a slide is like your friend tries to tell you where "there" to go while you are driving a car. This makes it a poor presentation relatively compared to other MIT OpenCourseWare lecture. Btw horse bet example is terrible, just skip that part.

  • @sandspatel
    @sandspatel 4 года назад +15

    Awful presentation of the topic. He knows how to derive it but shows his students nothing but a slideshow. Link the step and show the proofs man.

  • @FB-tr2kf
    @FB-tr2kf 6 лет назад +1

    What the hell was that in his pocket...

    • @kj762aa
      @kj762aa 6 лет назад

      probably the microphone

  • @justsaiyansteve
    @justsaiyansteve 7 лет назад +13

    Lol. He could be very berry smart, but me no understando.

    • @peaceonearth8693
      @peaceonearth8693 4 года назад

      Don't worry about it, the talk was aimed in the wrong direction and instead just delivered what you could read anywhere. Except in this case he drew out some math for us to see.

  • @carinafang8188
    @carinafang8188 6 лет назад +9

    i appreciate his effort but seriously the teaching is si bland....

  • @justsaiyansteve
    @justsaiyansteve 7 лет назад

    Lol.

  • @marcoveronesi1537
    @marcoveronesi1537 Год назад +1

    horrible presentation.