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You do not know the value of a call option - its true value, could be zero - until that date arrives, and the price of that share is revealed, whether it be, "in the money" or not. This formula is "voodoo economics".
Value is a SUBJECTIVE notion. This is an attempt to get many to agree on the value of an option, and to treat it as its true value, price, or cost. That is dangerous. It is merely an educated guess, or guesstimate.
For accounting purposes , rather than use this formula, if a company issues call options to its employees it should purchase countervailing put options, and record that purchase as the cost of those call options. Simple, right? You wish to give X to somebody, purchase X first, for say C dollars, and record $ C as the true cost of X.
That said, the more shares a company issues the less each share outstanding is worth - unless the company is issuing and selling those shares on the market to raise cash - in which case, value per share MIGHT be growing. But creating shares to give to employees, who pay not for them, tends to decrease value per share for all shareholders. The more persons have an equal share in something, the less each share is worth.
The fact that they had to add the caveat that their formula only works if the option is a European option, there is a constant risk-free rate of return and constant volatility, and that trading must be continuous and costless proves that the math is useless in reality. The fact that the formula is based on a metaphor between stock prices going up and down in a market and physical particles' random motion in a vacuum proves both that the math is useless and the theory behind it is pseudoscience. .
This is just superb, I been tryin to find out about "trade mispricing transfer pricing" for a while now, and I think this has helped. Have you heard people talk about - Genubrey Mispriced Infiltration - (Have a quick look on google cant remember the place now ) ? Ive heard some incredible things about it and my friend got cool results with it.
This video makes me take my subject Financial Engineering seriously. I mean, I just find it interesting on how this mumbo-jumbo of variables makes so much sense in going to more advanced financial modelling techniques.
It's nice to have those videos here, but could you please PROVIDE A NORMAL, NEUTRAL ENGLISH and not this American DIRTY SLANG ??? The rest of the world is not keen on this kind of English. I don't understand a word.
I have been watching these kind of videos for 3 years now for my uni and i have to say, i found no one close to your broad range of videos and high quality standards.
You made me pass a lot of courses.
I sincerely hope you earn a lot of youtube money.
Great. Another one? So there are Futures Traders and now Options Traders?
I have a semi-friend who was a Futures Trader but he also calls himself a broker. No idea if that's the same as a Futures Trader. He worked at a place with Futures in its name. He has a fit if I tell online in a social media the exact place of where he worked. No idea why that is either but I don't think I'll ever understand what he does. I've been trying to for over 5 years now. He's done work in all parts of finance though. He was also a hedge funds manager for awhile. He started as a floor trader in the 80's.
I call it a semi-friend bc someone like him never would have been friends with me (never would have met me) if I didn't know someone who died in the World Trade Center. He had a fund for victims' families. That's how I met him but I never used the fund. Eric wasn't a stockbroker. He was a recruiter for professional businesses. I have no idea what that means. Unfortunately I didn't ask and he didn't offer to explain what he does. He was too busy being excited about the Sphere that was in the World Trade Center (donated by someone in 1970) than he was about his actual work.
According to doctor I used to live with that means they spent all their time, "every waking hour and to the exclusion of everything else," trying to win the Nobel prize.
I told him he should do it. All his parents ever did was boast about how wonderful he was, how genius he was, how he was a genius when he was 6 years old. Going on and on about it every time we ever saw them, I didn't see why he shouldn't also get a Nobel prize to go with it. That's when he said you have to spend more time trying to win the prize than you do with anything else in your life.
There is no Noble Price in Economics. This was never intended by Mr. Nobel, as economics is a science with hughly vested interests (c.f. for instance Eugene Fama & Efficient Market Hypothesis). It was "invented" from the Schwedish Central Bank as a meassure of losing its independence or better getting under political investigation - done by buying economics a near-natural science reputation. All to get there own vested interests being done and keep critics outside.
Really? I thought Paul Krugman won a Nobel prize. My friend who's an economist used to like him until he started liking Piketty better. He spelled it for me. He almost died laughing when I pronounced it Skoles. He finds me frequently amusing.
Fantastic!!! with some real world introduction of the people how introduced this calculation, then some basic intuition and then a perfect break down to how it works (although the explanation is not very in depth, which is, at this point, absolutely ok!)
Thank you very much!
Thank you for Posting. You have done what many teachers do not do today. That of breaking the down the equation. Describing the outcome of the variable in a clear way. Your speaking voice is excellent and engages the listener. Do you know how hard it is to find teachers that want to teach because they are passionate teaching. You have unraveled our FATHER OF PRICING Option"s Formula and have done him a great service.
Thank you so much for the video. I have a question, can you tell where can we get the FX option prices history. I doing my thesis and Black Scholes is in my theoretical background, except I will actually use Garman Kohlhagen model, which is basically Black Scholes but is used for FX options.
According to the doctor I used to live with, getting a Nobel prize in something means you have to spend every waking hour of your day for years on end studying your profession, which leaves little to no time for your family or pursuit of other social interests.
I had asked him why he doesn't get a Nobel prize so the world would recognize his gr8 genius his parents never shut up telling to people.
The sarcasm was lost on him, b/c he answered the question seriously.
Black Scholes is extremely inferior 1)The process is actually multifractional (MPRE-multi-fractional with random exponent) multi-tempered stable motion 2).Even if the stochastic process is just a geometric Brownian motion, the nonzero quadratic variation of the aforementioned process coupled w/ non-zero proportional trading costs implies perfect dynamic hedging is infinitely costly. 3)There is endogenous price impact non-neutrality (endogenous reflexivity) 4). There is endogenous incompleteness.
Thanks for the video! As an Actuarial Student, this video is a pretty accurate and informative explaination video about the B-S Formula. 1 thing I would like to ask though, why didn't you include the divident factor into the equation?
Options are my bread and butter, calls/puts/credit spreads, always wondered about this formula but never dared to try to understand it! Very interesting video, not for everyone (your younger audience) I suspect, thank you !
Although foreigners may now invest in A-shares, there is a monthly 20 percent limit on repatriation of funds to foreign countries.
Performance of A-shares.
Since its inception in 1990, including a major reform in 2002, the index has seen great fluctuations. Overall, however, it has grown along with the Chinese economy. The years 2015 to 2016 were a particularly difficult period, with a 52-week performance of -21.55 percent as of July 20, 2016.
As China grows from an emerging market to an advanced economy, there is substantial demand for Chinese equity. Stock exchange regulators continue efforts to make A-shares more broadly available to foreign investors and have them recognized by the global investing community.
In June 2017, the MSCI Emerging Markets Index announced a long-awaited decision it would add stocks to its index. According to CNBC, MSCI will add 222 China A Large Cap stocks to its benchmark emerging markets index gradually beginning in 2018. The MSCI website reveals the stocks it will list include the Bank of China, China Merchants Bank, Guotai Junan, Ping An Insurance, according to a document on Tsingtao Brewery, SAIC Motor, Suning Commerce and Spring Airlines.
Current Dividend Preference.
Participating Preferred Stock.
Convertible Preferred Stock.
Cumulative preferred stock includes a provision that requires the company to pay preferred shareholders all dividends, including those that were omitted in the past, before the common shareholders are able to receive their dividend payments.
Non-cumulative preferred stock does not issue any omitted or unpaid dividends. If the company chooses not to pay dividends in any given year, the shareholders of the non-cumulative preferred stock have no right or power to claim such forgone dividends at any time in the future.
Participating preferred stock provides its shareholders with the right to be paid dividends in an amount equal to the generally specified rate of preferred dividends, plus an additional dividend based on a predetermined condition. This additional dividend is typically designed to be paid out only if the amount of dividends received by common shareholders is greater than a predetermined per-share amount. If the company is liquidated, participating preferred shareholders may also have the right to be paid back the purchasing price of the stock as well as a pro-rata share of remaining proceeds received by common shareholders.
Significance to Investors.