Hello Blog Readers,
Today I will be discussing the last of my readings (From next week onwards I will begin discussing with my internal advisor how to reverse Black-Scholes). My two readings this week were “Volatility Definition” by Investopedia and “On the Boness and Black-Scholes Models for Valuation of Call Options.” “Volatility definition” explains how VIX is a benchmark indicator of implied volatility which uses real-time S&P500 option numbers. The key take-aways are:
“Volatility is the statistical measure of dispersion of returns for a given security or index.
There are many different ways to measure volatility, including beta coefficients, option pricing, and standard deviations.
More volatile assets are considered riskier than less volatile assets because the price is expected to be less predictable.”
My second reading was extremely confusing due to all of its mathematics. However, the qualitative takeaways were that there a lot of variables which come into play when deriving these equations. Additionally, the fact that different equations can be conjoined as the product of this paper was actually combined the discrete time value Boness’ Model and the continuous Scholes’ Model. The main thing I learned was that Black-Scholes was modified to fit the Physics heat equation which has a known solution. I will be meeting with my internal and external advisors and will be discussing my meetings with them in next week’s blog.