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An Analysis of Dynamic Applications of Black- Scholes

An Analysis of Dynamic Applications of Black- Scholes. Aileen Wang Period 5. Purpose. Investigate Black- Scholes model Apply the B-S model to an American market Dynamic trading vs. fixed-time trading. Scope of Study. Analysis of input variables What are they? How will they be obtained?

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An Analysis of Dynamic Applications of Black- Scholes

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  1. An Analysis of Dynamic Applications of Black-Scholes Aileen Wang Period 5

  2. Purpose Investigate Black-Scholes model Apply the B-S model to an American market Dynamic trading vs. fixed-time trading

  3. Scope of Study • Analysis of input variables • What are they? • How will they be obtained? • What formulas are necessary to calculate them? • Making the model dynamic

  4. Related Studies • 1973: Black-Scholes created • 1977: Boyle’s Monte Carlo option model • Uses Monte Carlo applications of finance • 1979: Cox, Ross, Rubenstien’sbionomial options pricing model • Uses the binomial tree and a discrete time-frame • Roll, Geske, and Whaley formula • American call, analytic solution

  5. Background Information • Black-Scholes • Black-Scholes Model • Black-Scholes equation: partial differential equation • Catered to the European market • Definite time to maturity • American Market • Buy and sell at any time • More dynamic and violatile

  6. Procedure and Method • Coding classes: Stock class, B-S function • Main language: Java • Outputs: • Series of calls and puts • Spreadsheet, time-series plot • Inputs • Price • Volatility • Interest rate • Test data and historical data • Accuracy: the price can be compared to a calculator or historical data.

  7. Results • Explore • Option pricing with mathematics • Differences in the USA and Euro markets • Further research • Comparison with other mathematical models • Application into markets in other countries

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