Tomorrow, I plan to finish up on our coverage of option pricing; specifically, we will consider what happens with the binomial model when we let the number of time-steps become large while the duration of each timestep becomes small. We?ll see that the binomial model converges into the famous Black-Scholes equation. From the Black-Scholes equations for calls and puts, we?ll also see how replicating portfolio interpretations of these equations can be applied and discuss the relationship between option prices and their determinants. Then we will discuss how option theory can be used to model credit risk.
Since we already have our plates pretty full for tomorrow, I have decided to defer the assigned readings until Tuesday, November 20. I have changed the website to reflect this schedule change.
Source: http://risk.garven.com/2012/11/14/agenda-for-tomorrows-class-meeting/
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