This was great, I have been researching "mispriced items law michigan" for a while now, and I think this has helped. Have you ever come across - Genubrey Mispriced Infiltration - (Have a quick look on google cant remember the place now ) ? Ive heard some pretty good things about it and my partner got excellent success with it.
I have my final exam in corporate finance tomorrow, and I was just absolutely thrown by this concept. Thank you, SO much! You've managed to make this seem incredibly easy. I almost feel dumb for not understanding it initially.
You are a total blessing to me, am studying financial risk management, black schools option pricing model...you can imagine how you have helped me understand the formula. Hug hugs
Person like you should teach in the university, who can make most difficult issue easy. My FM prof. still doesn't give any real world example regarding option pricing but you are genius. my admiration and respect for you.
I have never really had problems with any type of math formulas. I have had to work a little harder solving some moreso than others, however, I could never NOT solve them. Then came Black-Scholes. I was truly flabbergasted. Then I saw your tutorial and excel sheet. It is excellent. It walks you through everything! Thank you so much!!!
Goodness....... nobody can explain this way. Excellent job Kevin! Hats off to you. Thanks a lot. Didn't expected that I would found this much elaboration on the topic.
Had an accounting professor who used the 'chalkboard method' of teaching where you write it out instead of using power point presentations (of which there are way too many of in business school.) When you write it out, it really does feel like you are with the professor the entire time. Like your minds are one.
Excellent presentation. Once you know the SD and the variation, you can actually covert these numbers into a standard normal distribution. Then, using a z score, you can see the probable outcomes. The model is using variation (volitility and risk) as a measure of probable outcomes.
Wow great video and very clear information. Was having some problems with the formula but you make the whole formula seem very easy. Your method is also different to the way my lecturer taught us however I much prefer yours. Thanks again!
I'm so glad you posted this clear and concise demonstration of the BSOPM. As a math major, I had always been curious about this model because my friends in the financial mathematics program were always talking about how fundamental it was to their studies. Now that the BSOPM is demystified some I don't feel as intimidated by it as when I knew nothing of it, a similar experience as when another youtube video demystified Fourier series calculations for me. Thanks!!!
omg thank you very much. This video was way more (really much more) useful than the two hours with my university professor who cannot explain anything right
Thank you Kevi , for expertly explaining this viable concept. You're very intelligent, so I know that I can learn valuable tips from you. You just earned a new subscriber!!
Thank you for your video and clear explaination, but I have a question. How can I calculate N(d) using a standard normal table? I mean I understood how to find N(d) value using the table you created, but how to calculate it using just the standard normal table? Thank you so much to anyone who will solve my doubt!
Elena -- The table I printed is a standard normal table (just with more detail). Some of them just give the positive values (the base is 0.5000), so you would subtract for a negative value and add for a positive value. Hopefully that answers the question, but if not, please clarify and I can try again.
First, I'd be cautious taking the BS price as the "true value" as it is going to depend on your volatility input. If you're value is $3 and the market is $2, it means you feel the stock is going to be more volatile over the life of the contract than the market does. Another problem is dividends. You can adjust the model for dividends, but I don't here. If you have a high dividend yield stock that pays dividends before the option expires, that could make the option appear undervalued.
It depends on how precise your standard normal table is and how precise you want your answer. I used Excel to generate a standard normal table that is pretty precise (from -1.00 to 1.00 every hundredth, from from 2.00 to 3.00 every two-hundreths, and five hundredths beyond there) to use for my class, so the students are not expected to interpolate. In practice, you would like use a spreadsheet or canned program that would generate exact values.
Great explanation! Would like to see you perform a couple examples using the BSOPM to identify the implied volatility for the particular underlying. I understand this is just working the formula a slightly different way with the variables at hand, but your followers would greatly appreciate - especially in-light of the importance of IV in options trading. Cheers!
I found this video very helpful. I am trying to access the spreadsheet but it is locked. I have requested access under the same name. Would you be able to grant access?
Hey Kevin, thanks a lot for this video. I just have a question :- so what does the final call option price tell us? It’s over priced and there’s a probability that it goes back to the intrinsic value ? Which is 2$?
It gives you a ballpark estimate of what the option is worth...not an exact value. One of the reasons it isn't exact is it is based on what the volatility SHOULD be between now and the option's expiration (which means you need a crystal ball or time travel 🤣). There are also assumptions about the return distributions, etc. which are approximately valid but don't account for unexpected news coming up (earnings between now and expiration or other news events). It's a good pricing model (better than many models in finance), but as with all models your answer should be not be taken as "correct", but as an approximation.
@@kevinbracker gotcha, so we can use the same pricing for options writing I’m guessing? So if the price feels like way above the fair value then it’s decent probability to write that particular strike price I’m guessing? ( of course other parameters also has to be checked)
isnt the time of the option usually measure in trading years, and not years? So 40 / 252, not 40/365. Edit: Nevermind, saw your reply to another comment asking the same thing ;) Answer: Depends on the question. Can assume this question is asking 40 calendar days to expiration.
The risk-free rate can come from the T-Bill or LIBOR rate for that time period. For example, if you were working with an option with 1 month to maturity, you would want a 30-day rate. If you were looking at an option with 3 months, you'd want the 3-month rate. Given the current interest rate environment, these are all going to be close to zero, but the risk-free rate will be more important under normal interest rate levels
Just a technical point to add. That risk free rate is not just any rate, one must ensure that it is the continuous risk free rate of interest. So if an effective risk free rate is given this means that it has to be converted so that an accurate figure is used
10 years later and its still gold, watching this video before my financial derivatives final 🙏🏼😂
Indeed, currently helping me with my ACCA AFM exam, good video
Explaining a complex subject in the simplest terms is not easy and this was very well done. Thank you Kevin!
Thank you for the explanation
Hi
Who else feels smart they understood this?
Actually, all credit goes to Kevin Bracker. He did an excellent job!
This was great, I have been researching "mispriced items law michigan" for a while now, and I think this has helped. Have you ever come across - Genubrey Mispriced Infiltration - (Have a quick look on google cant remember the place now ) ? Ive heard some pretty good things about it and my partner got excellent success with it.
Meeeeeeee am so proud of myself
Explained better than 99% of all university teachers in the world. Hello from Australia, thank you so much
Appreciate the feedback!
Thank you
I was frustrated from frm's readings and now you clear all the doubts and ambiguities at once. You have earned my admiration and respect, sir
am watching this 10 years later and I understand the whole process a lot better. Love the simple explanation. Thank you Kevin!
I have my final exam in corporate finance tomorrow, and I was just absolutely thrown by this concept. Thank you, SO much! You've managed to make this seem incredibly easy. I almost feel dumb for not understanding it initially.
Every view you have is some kid somewhere who is absolutely stoked they came across your content. Saving my semester!
Bracker 2020
You are a total blessing to me, am studying financial risk management, black schools option pricing model...you can imagine how you have helped me understand the formula. Hug hugs
Black Scholes not school
Person like you should teach in the university, who can make most difficult issue easy. My FM prof. still doesn't give any real world example regarding option pricing but you are genius. my admiration and respect for you.
The video explained the Black-Scholes Option Valuation Model exceptionally well. Really beneficial to newbies of this pricing model.
I have never really had problems with any type of math formulas. I have had to work a little harder solving some moreso than others, however, I could never NOT solve them. Then came Black-Scholes. I was truly flabbergasted. Then I saw your tutorial and excel sheet. It is excellent. It walks you through everything! Thank you so much!!!
Wow. This was excellent. I used the Black-Scholes online calculator and then used this and I got the same numbers. You are a phenomenal educator!
I cannot CANNOT thank you enough, sir. I am indebted . May you live a thousand years and more.
Thank you
I have an exam on this tomorrow. This video was excellent, thank you!
Wow.. This was very helpful. I never understood what "e" or "ln" was or how to calculate it until now! Thank you!
You're welcome.
Who goes to heaven? Kevin Bracker or me? This is outstanding. Thanks for taking your time for us sir.
Great video series on Black-Scholes. Took the mystery out for me.
Goodness....... nobody can explain this way. Excellent job Kevin! Hats off to you. Thanks a lot. Didn't expected that I would found this much elaboration on the topic.
Had an accounting professor who used the 'chalkboard method' of teaching where you write it out instead of using power point presentations (of which there are way too many of in business school.) When you write it out, it really does feel like you are with the professor the entire time. Like your minds are one.
This is the absolute best explanation /lesson on Black-Scholes. Thanks a million.
13yrs later and it's a blessing
Thank you!
This series is probably the best on You-Tube for options pricing theory. Thanks Kevin !
Very nice explanation, slow and patiently, always going back to the formula and explaining _every_ step. Nice video, thanks
really wish you were my uni lecturer, saw this after struggling to understand my lecture even after watching it like 5 times
Using spread sheet and norm table are very useful to understand the main point. Thanks Kevin!
Explanation is very good & easy to understand
This is a seriously great explanation. I've watched several videos on this topic today and none helped me to understand. Yours did. Thanks so much!
you literally saved my life with this thank you so much
I hope you're using the term "literally" to imply "figuratively" or the BS OPM is even more powerful than suspected! 🤣🤣
Super Excellent . Thanks Kevin for this valuable lecture
I have no words to express my thank you . These videos have saved my harvard days of investment class
Thank you Kevin,.... i was studying with "Maths of Financial Derivatives " and your video are strong complement....
You are the best. Ali khalil lawyer from Lebanon
Damm teacher I read 2 chapters of this in my book and I didn’t understand nothing, now all the things seems to easy with the video....thanks 🙏
Not all Heroes wear capes! I sincerely thank you for this explanation. Best wishes
Excellent presentation. Once you know the SD and the variation, you can actually covert these numbers into a standard normal distribution. Then, using a z score, you can see the probable outcomes. The model is using variation (volitility and risk) as a measure of probable outcomes.
Got my Finance exam in a couple hours. You just saved my life!
Thank you!
At 11:08 when I saw the formula it didn't looked scary anymore n I felt like this is easy🙏🙏😍.. You are really amazing.
The most practical one compare to other explanation and examples
Wow great video and very clear information. Was having some problems with the formula but you make the whole formula seem very easy. Your method is also different to the way my lecturer taught us however I much prefer yours. Thanks again!
Thank you so so so much. On Teachers day in India I wish you a very happy Teachers day. I understood black Sholes just coz of this video.
Thanks!
I'm so glad you posted this clear and concise demonstration of the BSOPM. As a math major, I had always been curious about this model because my friends in the financial mathematics program were always talking about how fundamental it was to their studies. Now that the BSOPM is demystified some I don't feel as intimidated by it as when I knew nothing of it, a similar experience as when another youtube video demystified Fourier series calculations for me. Thanks!!!
omg thank you very much. This video was way more (really much more) useful than the two hours with my university professor who cannot explain anything right
Using a real life example was very helpful .. thanks !
10 years old vid belong me understand the formula 🤔🙏🏼🙏🏼🙏🏼 thank you
Incredible explanation. Thank you very much! Finance student from Thunder Bay, Ontario.
Thank you Kevi , for expertly explaining this viable concept. You're very intelligent, so I know that I can learn valuable tips from you. You just earned a new subscriber!!
It's worth watching.... Thanks Mannn.. 🤝
Hey, Kevin! Thanks a lot for the file. Everything is clearer thanks 2 U!
You're welcome...glad it helped.
Explained very well,thanks.
You explain it good, im glad I found this video thanks 😊
Great explanation sir. Thank you!
Thank you for explaining option pricing with Black & Scholes!
Very helpful. I have an exam coming up on the BSOPM and this definitely helped me practice. Thanks!
Great video. Your explanation has improved my understanding of this topic.
Thank you
This was awesome...I now understand BSM-OPM..Many thanks to Kelvin
Kevin did an excellent job. Thank you, sir!
I really like the video . 😄 a very simple style of teaching and teaching students . Thank you for the video
OLD but GOLD!
Thank you for your video and clear explaination, but I have a question.
How can I calculate N(d) using a standard normal table? I mean I understood how to find N(d) value using the table you created, but how to calculate it using just the standard normal table?
Thank you so much to anyone who will solve my doubt!
Elena -- The table I printed is a standard normal table (just with more detail). Some of them just give the positive values (the base is 0.5000), so you would subtract for a negative value and add for a positive value. Hopefully that answers the question, but if not, please clarify and I can try again.
Amazing explanation. I was struggling to understand BSM. But it cleared all my doubts. Thanks. 🙂
thank you so much Sir I would like.to thank you because.i understood easy of that concept ...love u lots from india...😍🇮🇳
Wow you did in 13 mins what my 400 level college Instructor couldn't do in 3 hours :)... great job sir
This is so helpful.
So helpful !!! tnx, this example let me finish my eternal homework in no time :D
this was so helpful i finally understood you're a great teacher ! thank you
Clearly explained every steps
Nicely explained!
First, I'd be cautious taking the BS price as the "true value" as it is going to depend on your volatility input. If you're value is $3 and the market is $2, it means you feel the stock is going to be more volatile over the life of the contract than the market does. Another problem is dividends. You can adjust the model for dividends, but I don't here. If you have a high dividend yield stock that pays dividends before the option expires, that could make the option appear undervalued.
You are a real G!
Next week exams here I come 😅
Thank you !!!!!
you are a star indeed. God bless you more
Great job explaning a very complex subject!
Hey, THank you so much for explaining this in a clear manner. Really helps... Please post more videos I love your teaching style
It depends on how precise your standard normal table is and how precise you want your answer. I used Excel to generate a standard normal table that is pretty precise (from -1.00 to 1.00 every hundredth, from from 2.00 to 3.00 every two-hundreths, and five hundredths beyond there) to use for my class, so the students are not expected to interpolate. In practice, you would like use a spreadsheet or canned program that would generate exact values.
I hope you are my lecturer, thanks for the video!
Thanks. Been reading a few books on the related so good to see it can be broken down to be less daunting.
Your video is fantastic, makes it easy to understand options pricing. Thanks a lot
Awesome sir...
Great explanation! Would like to see you perform a couple examples using the BSOPM to identify the implied volatility for the particular underlying. I understand this is just working the formula a slightly different way with the variables at hand, but your followers would greatly appreciate - especially in-light of the importance of IV in options trading. Cheers!
THANK YOU SOOOOOO MUCH, you saved my homework tonight.......!!!!
+FRUIT Til FIVE What class is this for? I am a senior in high school, and this application of calculus is very interesting to me.
+vlKenzo Investment Analysis 👍🏽
I found this video very helpful. I am trying to access the spreadsheet but it is locked. I have requested access under the same name. Would you be able to grant access?
Should be in your inbox.
I ended up understanding a lot more with video, thanks for posting Kevin.
Hey Kevin, thanks a lot for this video.
I just have a question :- so what does the final call option price tell us? It’s over priced and there’s a probability that it goes back to the intrinsic value ? Which is 2$?
It gives you a ballpark estimate of what the option is worth...not an exact value. One of the reasons it isn't exact is it is based on what the volatility SHOULD be between now and the option's expiration (which means you need a crystal ball or time travel 🤣). There are also assumptions about the return distributions, etc. which are approximately valid but don't account for unexpected news coming up (earnings between now and expiration or other news events). It's a good pricing model (better than many models in finance), but as with all models your answer should be not be taken as "correct", but as an approximation.
@@kevinbracker gotcha, so we can use the same pricing for options writing I’m guessing? So if the price feels like way above the fair value then it’s decent probability to write that particular strike price I’m guessing? ( of course other parameters also has to be checked)
Wonderful video.
I am wondering what kind of standard deviation should one use in the model. Eg. 14 days? A year?
Thank you Mr. Bracker! You explained everything really well. Good work!
isnt the time of the option usually measure in trading years, and not years?
So 40 / 252, not 40/365.
Edit: Nevermind, saw your reply to another comment asking the same thing ;)
Answer: Depends on the question. Can assume this question is asking 40 calendar days to expiration.
Thank you so much sir
Very Clear Explanation! Thank you for the videos, and continue to this videos. Thanks
You explain very well, clear and slowly! Great. Thanks
Wow exceptional video, really really well explained and at a very at a perfect speed. Thank you
Thanks dont know why i paid my lecture for this
Thank you, love from 🇮🇳
Thank you so much
Finally understood!
Excellent Teacher!!
Watching it after 13 year of publishing😊
This has done me well, thank you very much.
The risk-free rate can come from the T-Bill or LIBOR rate for that time period. For example, if you were working with an option with 1 month to maturity, you would want a 30-day rate. If you were looking at an option with 3 months, you'd want the 3-month rate. Given the current interest rate environment, these are all going to be close to zero, but the risk-free rate will be more important under normal interest rate levels
Just a technical point to add. That risk free rate is not just any rate, one must ensure that it is the continuous risk free rate of interest. So if an effective risk free rate is given this means that it has to be converted so that an accurate figure is used
Excellent example for exam review. Thanks!
you should also explain which are the assumptions under the black and scholes model like the lognormal property of stock prices