reduced form and structural BSM models do we need to learn formula

Do we need to learn these formulas for calculation or just understand the concept?

It looks like we almost need to calculate these. Does anyone know?

We don’t need to know them, only the option analogy for structural models.


Wow Gebura - you’re up early!


I’m not, we have 1 hour difference (now is 12:30 AM in BG). Everytime I see you post I remember my vacations in Malta, it’s one of my favorite destinations :slight_smile:

No. You’d better make sure you know assumptions, advantages and disadvantages of the two models. For example they will throw out a statement about some assumption and ask you which model needs this assumption. I think we will be asked that way.

No formulas, only logic and assumptions!

Yep, assumptions, inputs, strengths, weaknesses, option analogy and should be good to go. I’d even argue looking at the formulae is not necessary at all. Mind you a lot of the assumptions for the structural model are the same as Black-Scholes-Merton since it’s a pretty similar model, if not an outright variant of BSM. So memorizing them gives you a nice bang for the buck.

but I looked at CFAI and it’s in derivs and fixed income, and there’s like 6 examples!!