Jurassic
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| Total Posts: 415 |
| Joined: Mar 2018 |
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| Whats the easiest method to solve the Black Scholes equation (ie easiest to memorise for interviews)? |
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nikol
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| Total Posts: 1366 |
| Joined: Jun 2005 |
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upgrade the memory
or
just understand every deriving step. If you do, the rest is easy. |
... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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bullero
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| Total Posts: 75 |
| Joined: Feb 2018 |
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bandi_np
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| Total Posts: 11 |
| Joined: Nov 2020 |
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An easy way is to:
1) "Solve" the SDE using Itô calculus (BS: use log)
2) Get the distribution for the underlying using 1)
3) Compute the expectation using 2) (simple gaussian expectation)
Maybe, you can start with the Bachelier model or arithmetic Brownian motion.
What is bullero saying is the apporximate value of the ATM option:
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