Unlocking the Secrets of Option Pricing: Changing the Game for Investors
The article discusses how to price options in financial markets by analyzing the sensitivity of option prices to different factors. The researchers focus on five key parameters (Delta, Gamma, Rho, Theta, Vega) in the Black-Scholes model to describe the risk characteristics of options and portfolios. They also introduce two numerical methods for pricing American options (binary tree method, finite difference method) and explain how to calculate the sensitivity parameters.