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Note that the author is pricing European options, not American options. The standard BSM formula is for European options, not American. If anyone wants to dive
by kevas 7y ago
Note that the author is pricing European options, not American options. The standard BSM formula is for European options, not American. If anyone wants to dive deep into a lot of the different models out there, check out The Complete Guide to Option Pricing Formulas by Espen Haug(1).
His site has some wonderful material too(2). I especially like his ‘Exotic Option Fantasy Land’(3)
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(1) https://www.amazon.com/Complete-Guide-Option-Pricing-Formulas/dp/0071389970/ref=nodl_ https://www.amazon.com/Complete-Guide-Option-Pricing-Formula...
(2) http://www.espenhaug.com/articles.html http://www.espenhaug.com/articles.html
(3) http://www.espenhaug.com/manhat.html http://www.espenhaug.com/manhat.html
- buschkowitz 7y agoThanks for the interesting link to Espen Haug! For non-financial engineers, there is a subtle difference between the two option flavors. Holders of an American option can exercise their right to buy/sell the underlying asset at any time while European option holders can only exercise at expiration date.