In level II, the BS model appears with the final conclusions of it - For those who are interested in knowing more of how to derive this model, this could be an interesting read that I wrote recently:
If you don’t know what BS model yet, then here is another post that explains it with Excel sheet to help you understand it:
http://cfatutor.me/2013/07/23/option-pricing-in-continuous-time-black-scholes-model-and-the-greeks/
nicely written - summarizes what I learnt in one semester of security pricing into 1 pager note. I remember the proof of Ito was brutal - but the proof of lemma became much easier after the Ito process is understood fully …
oh my gosh. Crazy maths … fortunately (Or unfortunately) I did not take the quant route …
Atlantiz … I thought that the full derivation will get people crazy so I decided to simplify it … The point after all is not to prove who knows to do math better but I personally believe that an idea of how black-scholes model derived is really important for anyone who passed level II CFA and I blame the CFA institute for not providing it in their books … at least as an optional segment