Introduction to the Black-Scholes formula | Finance & Capital Markets | Khan Academy
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- Опубликовано: 2 окт 2024
- Created by Sal Khan.
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I thought the third guy was going to be called Formula
haha!!
good one xD
lol
fantastic
Or model
I have been watching these kind of videos for 3 years now for my uni and i have to say, i found no one close to your broad range of videos and high quality standards.
You made me pass a lot of courses.
I sincerely hope you earn a lot of youtube money.
Lmao facts. This guy is amazing. I know when I get a stable (hopefully high paying) job Im gonna donate to Khan Academy, cuz it is a non-profit
can't agree more!
@@ItsBigChuck and how is it going so far? (just curious, it's been 2 years)
@@JoãoFlorêncio-d8o😂😂😂
@@ItsBigChuckhow’s it going so far
I like the "rough speaking", it made things more clear to me.
Talk rough to me
@@thamadflava daddy
Thank you for Posting. You have done what many teachers do not do today. That of breaking the down the equation. Describing the outcome of the variable in a clear way. Your speaking voice is excellent and engages the listener. Do you know how hard it is to find teachers that want to teach because they are passionate teaching. You have unraveled our FATHER OF PRICING Option"s Formula and have done him a great service.
Even I have the feeling I understood something. Hahaha !
Thank you so much! I'm preparing for my CFA level 2 and was stuck on the black-sholes model. You saved me so much time of head-scratching!
This is by far the easiest way to explain the B&S formula ! Thank you so much for this instructive video !
Honorable mention to Louis Bachelier who did the preliminary research that led to the Black Scholes Formula.
In creating the formula, we can it either an initiator, innovator, or executer
this saved me in my financial theory and practice exam
Do you have any pdfs used to help
Me study for financial theory as a whole? Please
Best video on BSM.
So simple and clear. Thanks Sal
Sal, you ROCK!!! So thankful for this explanation and overview. Really appreciate bringing Black-Scholes back to practical use. Probably the best explanation on the web. No, make that in the entire world!
"most famous equation in finance", lol. a certain CAPM may be a good rival.
@eloteh CAPM is more likely relevant for other assets and it has already a serious competitor : APT model.
Thank you so much. you are a awesome teacher.
Thank you so much for this. I have immense respect for Khan Academy and the work you guys do. It's quality and life-changing.
I guess it should also be mentioned that Merton and Scholes went on to create a hedge fund (LTCM) which almost melted down the economy and was bailed out by tax payer money to avoid a contagion to the overall economy that would have been in the order of trillions of USDs. The math might have been elegant, but risk pricing (the actual reason why they have received the nobel prize) was not really the thing these gentlemen were good at ironically.
It's clearly explained! Thanks :).
What actions we can take based on greeks values ? Are there any channels that share that ?
A phenomenal lesson I’ve been watching this lesson overtime in my studies, and as I revisited, Always understand a little more. I have immense respect for Khan Academy and the work you guys do, really help me a lot. My humble contribution to this, 's in time 9:09, when you said that an increase in sigma (historical volatility), makes D1 go up and D2 down in value, which it's not quite accurate, I'm certain it's because you speaking in rough terms to be easier to understand.
As my understanding goes, an increase in volatility (sigma) makes BOTH D1 and D2 increase in value, but the ratio of this increase in D1 is greater. Which makes the difference, between them, and their fore between N(D1) and N(D2) greater. And that's why an increase in volatility alone makes the premium of a call option, as the example, have an increase in value. More specifically Extrinsic value. The outcome in the premium it's the same, but I humbly believe that's this's more the case in that situation.
Sorry for the bad English, I'm a foreigner and I love the videos. You guys should do a deep math course on Black and Scholes, I'm certain it's gonna be great! Best Wishes!
Great video! I'm studying for an exam and your videos really are a lot clearer and easier to remember than the rambling of my professor or the 800 pages of examples in our books. Life saver!
Can you derive mathematically d1? Thank you! Or do you know where to find a derivation of d1? I mean why is it equal d2 Plus stand. Deviation and squared time until expiration
I did this in college, 43 years ago with select stocks in S&P 500. The problem with it is that the distribution of risk is not representative to reality, it’s only an attempt or approximation. For example a standard dev. gives equal weights to up and downside.
has anybody had success with applying this formula @federick ?
That is true for all models. For a model to be useful, it need not always accurately represent reality. However the user has to be aware of the limitations of the model he uses.
Thank you!
I want to Algebraic Isolate the Stock Price from the Black Scholes formula.
I have not been successful yet. Is there a way?
Please do the whole series😭
My professor don't teach me anything
I am all dependent on you😭
my prof. never tried to break down this BS model in class. this is simply the best explanation of one of the most complicated formulas in finance world. Thank you so much Professor Khan. You are the best!
fantastic
Thank you. It's interesting and much more easier to understand/remember than textbook :))
I've never done any finance or economics, nor seen any previous videos on the subject, I just watched it because it sounded interesting :p
Thank you soooo much!! you explain it very clear and very easy to understand. Even if I do not have a strong math background, I can still understand it. which is very helpful for my CMA study. I was trying a long time to find a good explanation online until I found you !!
Amazing video! T does represent time to expiration but not 'how long the holder of the option has to exercise it'. The model was created to value the price of European Options only (not American), Options whereby the contract is only executed at the Expiration date and not before, so we are interested in T in the model as it tells us when the Option gets executed, the holder of the Option cannot execute it early :)
you sir are sofa king amazing
This video makes me take my subject Financial Engineering seriously. I mean, I just find it interesting on how this mumbo-jumbo of variables makes so much sense in going to more advanced financial modelling techniques.
"Financial engineering"
They're just slapping engineering on everything now aren't they
Lovely
Can the N(d1) and the N(d2) be replaced with just the formulas for d1 and d2?
I'm such an idiot. I thought it said the Back to School formula XD 🤦♀️ (low key clicked because of that) 🙃
Honestly, I was about to click away, but then I stuck it out. Sal's just a genius at teaching.
Thank you so much for the video. I have a question, can you tell where can we get the FX option prices history. I doing my thesis and Black Scholes is in my theoretical background, except I will actually use Garman Kohlhagen model, which is basically Black Scholes but is used for FX options.
My god, thank you for existing. I love you. Thank you thank you for making finance fun!
but if the put option, we just change formula to pay-get, right? or we change the minus result to plus in the end?
tasukete please, help me
Who is this guy? How does he know all this stuff?
Really appreciate with your effort in making this video. I could really get the meaning and applied to tests or exams. THX!
I'm here because of Joma, anyone?
Khan academy 👍
Fantastic!!! with some real world introduction of the people how introduced this calculation, then some basic intuition and then a perfect break down to how it works (although the explanation is not very in depth, which is, at this point, absolutely ok!)
Thank you very much!
Does this equation have any provable value? Or is it just another way for us to spin our wheels? Only useful in the short term. And not even all that useful. Sadly.
Thanks for the video! As an Actuarial Student, this video is a pretty accurate and informative explaination video about the B-S Formula. 1 thing I would like to ask though, why didn't you include the divident factor into the equation?
is there also a formula like this for american options?
Very well explained. I finally understood the logic with the help of your video. Thank you for making it so simple.
According to the doctor I used to live with, getting a Nobel prize in something means you have to spend every waking hour of your day for years on end studying your profession, which leaves little to no time for your family or pursuit of other social interests.
I had asked him why he doesn't get a Nobel prize so the world would recognize his gr8 genius his parents never shut up telling to people.
The sarcasm was lost on him, b/c he answered the question seriously.
What about american options?
One of BSM's many assumptions is that it does not apply to American options
It applies to american options too, you just need to adjust the time variable.
This guy teaches by day and trades FD’s by night.
謝謝謝謝謝謝
You can never predict anything in a system based on irrational production.
from where would i derive the risk free interest rate or the SD?
How is this equation applied for Put options, rather than Call options?
for d1 ...Would we not need to discount the X (exercise price) by e^-rT ?
Sebastian Roest it's market stock price, the strike price is in future
Excellent!! Nothing will be able to substitute your way of explaining.... Keep it up, Thanks!!
Gonzalez Sharon Gonzalez Patricia Thompson Donna
Excellent explanation
Thank you ! This helps me a lot. Keep up the good work :)
Edward Thorp was originally the pioneer of this formula but hadn't publicise it straight away
This is just superb, I been tryin to find out about "trade mispricing transfer pricing" for a while now, and I think this has helped. Have you heard people talk about - Genubrey Mispriced Infiltration - (Have a quick look on google cant remember the place now ) ? Ive heard some incredible things about it and my friend got cool results with it.
Thank you so much, this helps a lot I am currently doing a computation course for physics and this is our takehome!
The BSM eqn is a failure of "triumph" of mathematics over reality. You should teach Bachelier pricing with lognormal distribution. BSM is fragile to high impact rare events. It is a dumbed down version of the Bachelier model that suited the assumptions and ideology of neoclassical economics, which is a failed paradigm. Massive fail thrice in our lifetimes (past 25 years). Also, the BSM model was known at least as far back as 1964 by Boness, and in 1967 by Ed Thorp.
Great video as usual sal! Can you by any chance make videos in preparation for the CFA?
Didn't Edward Thorp really develop this?
Intuitively why is it hat the higher the stock price the higher the call option is? I thought it'd be the opposite intuitively. Because at a lower stock price the room for increasing stock price is higher thus when you buy a call option, the lower the strike price is the more the potential earnings will be. Can someone explain to me please!!!
Anyone know how to get volatility for non-public start-ups or is there a different valuation method to calculate stock-option expense for start-up?
Yep, this stuff still makes zero sense. Not the fault of Khan academy per se, but the topic is just so hard to understand
Any chance you could put this in lay man's terms without the scribbles so it might make some sense?
According to doctor I used to live with that means they spent all their time, "every waking hour and to the exclusion of everything else," trying to win the Nobel prize.
I told him he should do it. All his parents ever did was boast about how wonderful he was, how genius he was, how he was a genius when he was 6 years old. Going on and on about it every time we ever saw them, I didn't see why he shouldn't also get a Nobel prize to go with it. That's when he said you have to spend more time trying to win the prize than you do with anything else in your life.
Normally the exercise price aka strike price is denoted by K
Hands off my uni lecturer is the worst, this simple 10 minutes saved my life
I'm just curious, but is anyone a high school student like me just learning about options during there free time? lmao
I trade options and spreads for side income
Me after 10 mins..bhai kehna kya chahte hoon""
1:50 details
Great. Another one? So there are Futures Traders and now Options Traders?
I have a semi-friend who was a Futures Trader but he also calls himself a broker. No idea if that's the same as a Futures Trader. He worked at a place with Futures in its name. He has a fit if I tell online in a social media the exact place of where he worked. No idea why that is either but I don't think I'll ever understand what he does. I've been trying to for over 5 years now. He's done work in all parts of finance though. He was also a hedge funds manager for awhile. He started as a floor trader in the 80's.
I call it a semi-friend bc someone like him never would have been friends with me (never would have met me) if I didn't know someone who died in the World Trade Center. He had a fund for victims' families. That's how I met him but I never used the fund. Eric wasn't a stockbroker. He was a recruiter for professional businesses. I have no idea what that means. Unfortunately I didn't ask and he didn't offer to explain what he does. He was too busy being excited about the Sphere that was in the World Trade Center (donated by someone in 1970) than he was about his actual work.
There is no Nobel Prize in economics. There is a Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, but that's not issued by the Nobel foundation.
great video for economics and finance students like me!!! thanks, Sal!!!
Fantastic video!
Thank you for saving me heaps time in studying!!!!
these three men have caused so much pain
This is so subjective. If "black scholes" really is the "greatest formula of all time", how could 🤓🤓🤓🤓🤓🤓 idk man I just wanna go to bed
Amazing explanation
cazzo bravissimo
My favorite part is when they lost 4 billion dollars in LTCM
This is way to easy. Please fix
This is an ok formula except that it assumes a normal distribution which is scary for option writers in the event of a black swan
Thanks! Very helpful! Looking forward to the derivation!
Options are my bread and butter, calls/puts/credit spreads, always wondered about this formula but never dared to try to understand it! Very interesting video, not for everyone (your younger audience) I suspect, thank you !
Wow, this explanation was amazing!
I really enjoyed this video. Thanks.
If d_1 and d_2 get larger, doesn't SN(d_1) and Xe^{-rT}(d_2) annulate themselves ? And what is the point therefore ?
Not sure if you care after six months, but it's because of the square
As the standard deviation gets larger, the difference in the two parts of the equation also gets larger.
d2 is wrong there
great explanation
Wow thank you I intuitively understand the formula now
4:55
2:09
Black Scholes is extremely inferior 1)The process is actually multifractional (MPRE-multi-fractional with random exponent) multi-tempered stable motion 2).Even if the stochastic process is just a geometric Brownian motion, the nonzero quadratic variation of the aforementioned process coupled w/ non-zero proportional trading costs implies perfect dynamic hedging is infinitely costly. 3)There is endogenous price impact non-neutrality (endogenous reflexivity) 4). There is endogenous incompleteness.
U been reading George Soros' stuff m8?
Holy crap. I never understood a word said here^
kindly be advised date pf expiration T is expressed in days or weeks or what? if I'm calculating C0, thank u
i would imaging you convert r to daily rate, and then t would be the number of days.
I remember Sal saying that he wants too but he has to get an intuition on the subject before he can teach it.