I have noticed that the equstions on the CFAI pracitce exams do not really go into detail about options. Do you guys think that there are going to be many questions regarding put/call parities? I’m thinking the time it takes to master that material might not be worth it… Any suggestions??
just asked a buddy who is level III candidate…he said it’s part of the ciriculum but i’ve never seen it directly asked technically you’re supposed to memorize black scholes just remember the equation…its fairly simple. C+ pv of strike= stock + put
I remember the chart, then try to recreate it from a bond, stock, call and put!
petetini Wrote: ------------------------------------------------------- > just asked a buddy who is level III candidate…he > said it’s part of the ciriculum but i’ve never > seen it directly asked > > technically you’re supposed to memorize black > scholes > > just remember the equation…its fairly simple. > C+ pv of strike= stock + put You’re not supposed to memorize B-S for any level (that’s what books are for). Put-call parity is vastly more important and shows up in all kinds of guises.
AGreed Joey D…i am just relaying what my boy said…he and are are both option traders…i have traded options since 91 and can’t remember B-S to save my life…its all put call parity. good luck tomorrow.
memorize the chart abt valuation of European vs. American Option~
If it’s a matter of saving your life, remembering B-S isn’t that difficult. What you really have to remember is that under the usual assumptions of B-S the Ln(S[T]) is normally distributed with mean = ln(S) (cause the starting price matters) + mu*T (cause that’s what drift is) - sigma^2/2*T (vol cuts into return but the exact amount you have to remember) variance = sigma^2 * T (a period twice as long has twice as much variance) Now you’re set - call option value at expiration = E(stock price in risk neutral world above X) - X*P(option is exercised) For risk neutral world - replace mu by r. Then discount to today at rate r. All of which sounds complicated but if you do it about once or twice, you can derive B-S in 20 seconds or so. After you do it 20 or 30 times, you remember it completely because you can see yourself doing those steps.
Black Scholes. google for more.