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ERIC Number: EJ1060309
Record Type: Journal
Publication Date: 2010-Feb
Pages: 12
Abstractor: As Provided
ISSN: ISSN-1942-2504
Simple Heuristic Approach to Introduction of the Black-Scholes Model
Yalamova, Rossitsa
American Journal of Business Education, v3 n2 p31-42 Feb 2010
A heuristic approach to explaining of the Black-Scholes option pricing model in undergraduate classes is described. The approach draws upon the method of protocol analysis to encourage students to "think aloud" so that their mental models can be surfaced. It also relies upon extensive visualizations to communicate relationships that are otherwise inaccessible at the average student's level of mathematical sophistication. This paper presents visual illustration of the changes in the probability measures with concrete examples breaking the option premium into four different components. The relationship between changes in variables and those components are graphically and algebraically illustrated.
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: Higher Education; Postsecondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Grant or Contract Numbers: N/A