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Option Pricing

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

 

 

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