This is the best and more intuitive explanation of the Black Scholes model I have ever seen! Simply awesome! Thank you!
@quantpie2 жыл бұрын
you're welcome! thank you very much, that is very kind!
@fminc3 жыл бұрын
Beautifully done. Thank you so much. That was the kick I needed.
@quantpie3 жыл бұрын
Glad it helped! You are welcome!! thanks!
@saumitrabhaduri894311 ай бұрын
According to the example N(d1) and N(d2) are same - how to reconcile with BS
@ammonshumway2 жыл бұрын
Aaaamazing! I've seen this formula so many times, and this explanation is the best!
@entertainity2 жыл бұрын
Legend. Gave me the 'click' moment in my head. Thank you!
@vvishwakarma4 жыл бұрын
I watched this video and loved the way he decompose complexity into naturally simple problem. Concise, accurate and easy to explain to myself later.
@quantpie4 жыл бұрын
Glad you enjoyed it! And many thanks for the kind words!!
@hit32122 жыл бұрын
Your calculation assumes that N(d1)=N(d2), as you are using the same probabilities to calculate the sums. This is not right. N(d1) is always greater than N(d2). The two probabilities are never the same.
@quantpie2 жыл бұрын
Many thanks @Googgie Bear for the question! No it is not assuming that N(d1) and N(d2) are equal. N(d1) and N(d2) are aggregate measures, here we are dealing with probabilities at various levels of the underling asset prices. Hope that helps!
@stonecastle8587 ай бұрын
Worth pointing out that it is the mean of the log return, not the mean of the stock price?. Seems obvious, but not always clear.
@mattl64627 ай бұрын
isn't at money option delta should be 0.5?
@prorigami24442 жыл бұрын
that was so nicely explained
@stonecastle8587 ай бұрын
Great explanation though - thank you
@finalpurez2 жыл бұрын
This has to be the best explanation for Black Scholes model! Thanks so much! Will be trying to re-create your excel!
@quantpie2 жыл бұрын
thank you!
@hafizurrahman44844 жыл бұрын
What is the intuitive understanding for the difference between N(d1) and N(d2) here?
@quantpie4 жыл бұрын
Hello! Here we are explaining the full terms: S N(d_1) and K N(d_2). In the original BS, N(d_1) and N(d_2) are just there to collect terms for presentation purposes, but with hindsight (more recent research) we can impose interpretations on them. N(d_1) as we mentioned in this video is the probability of the stock being greater than K (under the risk neutral measure). N(d_2) is the same probability but under the Stock measure (please see here: kzbin.info/www/bejne/a2W0d6iAjL6fha8). This shall be made more simpler in a future video! many thanks!
@nikkatalnikov3 жыл бұрын
@@quantpie isn't N(d_1) under stock measure and N(d_2) under risk-neutral measure?
@surendrabarsode89594 жыл бұрын
Very simply and clearly explained. Thanks. Please add more such videos especially on interest rates modeling
@quantpie4 жыл бұрын
thank you! Sure we will!
@अंतुबर्वा2 жыл бұрын
In case any one wondering conversion LOGNORMDIST to prob value, the prob value is LND (S2)- LND (S1).. i.e. subtract lower Quantpie, please confirm if that's valid approach.
@quantpie2 жыл бұрын
yes that's correct but LND also takes the two parameters.
@shawngu862 жыл бұрын
Hi can I ask a question, N(d1) is a normal distribution function, whereas your video uses lognormal to replace it?
@quantpie2 жыл бұрын
hello @GU Shawn, and sorry for the slow response. Not it is based on log normal distribution.
@essaybeans2 жыл бұрын
May I ask what is the assumed expected growth rate of the underlying asset as well as the risk free rate in this example? Here, the strike equals the current stock price, would the illustration work when the two are different? Thanks!
@quantpie2 жыл бұрын
Many thanks! Yes it should work!
@sat79092 жыл бұрын
Fantastic video. But, how does the model accomplish this with a Z-score? d1, will yield a Z-score and we use a cdf table to get a probability. How does multiplying this probability by the current share price, ( the first term of black scholes, S0(Nd1) ) give the expected cash inflow of an option?
@FenderAddict93 Жыл бұрын
Another channel on YT mentioned that if we assume the risk-free rate = 0 (implies random walk), then we shouldn't include the σ²/2 part into the drift calculation, instead, just zero out the whole drift calculation. In this case (according to the formula you give), m should be = ln S₀ - 0. Why was his equation different than yours even when you both assume risk free rate = 0?
@giovanniberardi41342 жыл бұрын
It would be possible to post the full list of labels? Thank you very very much for all of your videos!!
@quantpie2 жыл бұрын
Many thanks for the suggestion! The reason we did not is because it encourages a lot of people to recalculate everything, and this practice is priceless!!
@commonmancrypto16482 жыл бұрын
Is there a specific term referring to a call whose strike price is an equal distance between the share price and the "breakeven" price?
@psggroupref-vz4jz Жыл бұрын
super
@Pier_Py4 жыл бұрын
Can i cite this video in my final thesis?
@quantpie4 жыл бұрын
of course! many thanks!!
@Pier_Py4 жыл бұрын
I showed the professor who is following my thesis this video, he approved it and said that this is one of the clearest video explaining Black and Scholes ever!
@quantpie4 жыл бұрын
@@Pier_Py many thanks! And good luck with the thesis!
@Pier_Py4 жыл бұрын
@quantpie just for fact, i succedeed in doing your scheme on Excel but with more categories and random drawings from log-normal distribution! It is just a bit more precise, however it is a really great rappresentation! you guys gave me a lot of inspiration! i think that i watched this video at list 50 times ahah
@quantpie4 жыл бұрын
@@Pier_Py glad to hear it!!When we get questions we will be sending them your way!!
@abcchanaskh20062 жыл бұрын
Hi , I could not calculate the number as your. Could you share the excel file of the prob. for me (if have ) ? thanks a lot
@abcchanaskh20062 жыл бұрын
can I know why the mu is InS0 -0.5 *variance *T ? thanks