Black Scholes Replacement?

sle · Jul 26, 2005

Quote from jrkob:
Copula based algorithms based on JP Morgan theories

you do mean R. Merton, don't you?

You know, JP Morgan has been dead for a while, way before the era of correlation trading

riskarb · Jul 26, 2005

Quote from sle:

you do mean R. Merton, don't you? You know, JP Morgan has been dead for a while, way before the era of correlation trading

Yes, but they blessed the world with VaR!

nononsense · Jul 26, 2005

Quote from toben:

My Finance Prof. said the investment banks were no longer modeling options through Black Scholes due to ....

I wonder what they give Nobel Prizes for these days? Certainly not for succeeding in markets.

sle · Jul 26, 2005

returning back to the topic - it's worth looking at SABR: http://www.princeton.edu/~sircar/sabrall.pdf
it is a bit tricky to implement, but it's worth it.

FredBloggs · Jul 26, 2005

never take advise from a broker

TorontoTrader2 · Jul 26, 2005

Question, I use B&S all the time for my trading, but Cybertrader also has available Barone-Adesi-Whaley and Cox-Ross-Rubinstein. models. Can someone tell me how they differ, or has anyone heard of the other two?

p.s this book is a good read:, it's not technical but more a light hearted look at the life of a Quant, with a some technical info thrown in.

http://www.amazon.com/exec/obidos/A...5/sr=2-1/ref=pd_bbs_b_2_1/002-8653382-8681626

riskarb · Jul 26, 2005

Quote from TorontoTrader2:

Question, I use B&S all the time for my trading, but Cybertrader also has available Barone-Adesi-Whaley and Cox-Ross-Rubinstein. models. Can someone tell me how they differ, or has anyone heard of the other two?

p.s this book is a good read:, it's not technical but more a light hearted look at the life of a Quant, with a some technical info thrown in.

http://www.amazon.com/exec/obidos/A...5/sr=2-1/ref=pd_bbs_b_2_1/002-8653382-8681626

Whaley is quadratic model with an adjustment for american-exercise conventions. -- Black Scholes is a closed form solution; CRR is a "brute force" open form binomial tree which follows the movements of the spot under GBM and outputs pricing thru backward induction. Very widely used and accurate for Amer. options provided sufficient iterations are chosen.

jrkob · Jul 26, 2005

Quote from sle:

you do mean R. Merton, don't you? You know, JP Morgan has been dead for a while, way before the era of correlation trading

Yes sorry lol

By the way I have read somewhere that JP Morgan actually died in the Titanic when it sank, is there any truth in that ?

jrkob · Jul 26, 2005

There's a paper on CCR model here:
http://www.business.uiuc.edu/gpennacc/f400n10.pdf#search='CoxRossRubinstein'

The paper should be explicit enough to help you model it in Excel.

science_trader · Jul 27, 2005

Quote from riskarb:

Whaley is quadratic model with an adjustment for american-exercise conventions. -- Black Scholes is a closed form solution; CRR is a "brute force" open form binomial tree which follows the movements of the spot under GBM and outputs pricing thru backward induction. Very widely used and accurate for Amer. options provided sufficient iterations are chosen.

CRR is a closed form too....

Black Scholes Replacement?

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