Notebook 3 Flashcards by Dylan Ottey

Q

What is the black-scholes formula for call and put options?

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Q

How do you write a euro_call_BS_pricer function?

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Q

How do you write a euro_put_BS_pricer function?

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Q

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Q

What is the Put-Call Parity?

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Q

Verify the Put-Call parity,

Hint: Consider the grid of spot prices form the previous question. Verify the put-call parity graphically. Then use numpy.linalg.norm ot ocmpute the norm of the difference, you can use the standard 2-norm, 1-norm and inf-norm

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Q

How can we use the Put-Call Parity to generate a European_BS_pricer function for both call and put options?

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Q

What is important to do throughout the code (and most likely in the exam)?

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Q

If our BS_pricer function returns multiple values, how can we get it to price just one of them?

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Q

What are the usual steps for calculating a European call option by simple/naive Monte Carlo?

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Q

What is the formula for the discounted payoff of a call option?

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Q

Calculate the solution use GBM formula with X~N(0,1)

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Q

What is the solution using W_T~(0,T)

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Q

What are the three processes for Brownian Motion we need to know?

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Q

What is the expectation and variance of a call option payoff (mathematically)?

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Q

What is the SEM and what do we normal use for the confidence bands?

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A

Q

BigO of Monte Carlo methods?How does it compare to grid methods? Why is MC widely used?

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Q

Standard algorithm for European Call Options?

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Q

What is the function for calculating the BS_call_delta()?

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Q

What is the function for calculating the BS_put_delta()?

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Q

What is the function for calculating BS_delta()?

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Q

How do you code the function the MC_euro_call_delta()?

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Using path-recycling

Q

How do you code the function MC_euro_put_delta()?

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Using path-recycling

Q

What should you always do when estimating MC European Option prices?

How do you go about it?

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A

How would I code a plot my European call option spot prices against the Option Value?

How would I code a plot my European put option spot prices against the Option Value?

How would i code a plot for my European call option deltas against their option values?

How would i code a plot for my European put option deltas against their option values?

If asked what the usual import libraries are for this Notebook?

Main option Greeks?

What is the standard algorithm for computing the delta of a call option?