Options (or Derivatives in general) are instruments whose payoffs depend on the movement of underlying assets. The value of the derivative instrument therefore can be evaluated by creating and valuing a portfolio of assets whose prices are easily observed in the market and whose cash flows replicate those of the options.

The methodologies used to price a derivative security may vary from closed form solutions such as the Black-Scholes option pricing formula, to numerical methods such as the binomial trees and Monte Carlo simulation.

Our Option pricing guides cover vanilla options, exotics, interest rate derivatives & cross currency swaps. We use Monte Carlo Simulation for exotics, Black Scholes for intuition, Binomial trees for American options & forward and zero curves for interest rate derivatives