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Affiliation(s)

University of Adelaide, Adelaide, Australia

ABSTRACT

With the implementation of reform of financial system and the opening-up of financial market in China, knowing and properly utilizing financial derivatives becomes an inevitable road. The phenomenon of B-S-M option pricing model underpricing deep-in/out option prices is called volatility smile. The substantial reasons are conflicts between model’s presumptions and reality; moreover, the market trading mechanism brings extra uncertainties and risks to option writers when doing delta hedging. Implied volatility research and random volatility research have been modifying B-S-M model. Giving a practical case may let reader have an intuitive and in-depth understanding.

KEYWORDS

financial derivatives, option pricing, option strategies

Cite this paper

Economics World, July-Aug. 2018, Vol. 6, No. 4, 331-336 doi: 10.17265/2328-7144/2018.04.009

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