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The Black Scholes paper is actually pretty difficult, and not terribly rewarding with respect to developing intuition. To develop the intuition, get a full han
by JackFr 3y ago
The Black Scholes paper is actually pretty difficult, and not terribly rewarding with respect to developing intuition. To develop the intuition, get a full handle on put-call parity, the construction of replicating portfolios, and then risk-neutral pricing. Additionally, always have an eye on the intrinsic value, time value and insurance value of options and how they move with respect to the options characteristics.
- pjacotg 3y agoI found learning about the binomial model to be particularly good at establishing intuition about option pricing. Nowadays it's considered a toy model but it makes the ideas of a replicating portfolio and risk neutral probabilities very clear with nothing more than basic high school math.