Fixed Income & Options Math · Pricing
Black–Scholes & the Greeks
The 1973 formula that priced options from five inputs. What each term means, a full worked example, implied volatility and the smile, and how traders use delta, gamma, vega and theta to hedge books of options.
Step 1 of 6 · Overview40 min read ·
Key idea
Prereqs: Options payoffs & binomial trees; Distributions (Math). Next: Python for finance. Follows Hull ch. 15 & 19, Black & Scholes (1973) and Merton (1973); Nobel Prize 1997 (Black died in 1995).Next: 1. The formula