Market Price of Risk: All You Need to Know
The Whispering Void What is Market Price of Risk? The market price of risk refers to the desired return over the risk-free rate as compensation for taking on risk. A Short Example Historically…
Volatility Smile in Finance: All You Need to Know
What is Volatility Smile? The expression “volatility smile” refers to the variation in implied volatilities of options based on their strikes. A smile indicates that out-of-the-money puts and calls have…
Complete Market And Incomplete Market: All You Need to Know
What is Complete Market and Incomplete Market? In a complete market, derivative products can be created by combining basic instruments like cash and underlying assets. Typically, a portfolio of simpler…
Jump Diffusion Model And Option Values: All You Need to Know
How Jump Diffusion Model works? In jump diffusion model, prices are permitted to jump discontinuously in addition to the continuous Brownian motion (the diffusion) observed in Black-Scholes models. Typically, the…