Black Scholes Explained - A Mathematical Breakdown

This video breaks down the mathematics behind the Black Scholes options pricing formula.
The Pricing of Options and Corporate Liabilities:
www.cs.princeton.edu/courses/...
Excel Model
docs.google.com/spreadsheets/...
3b1b Normal Distribution Video
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Note: Be sure to download the sheet in Excel, as not all formulas will populate in Google Drive.

[@tarunmathew2801]

This channel is a hidden gem. Incredibly insightful, explained clearly and perfectly presented!

[@financeexplainedgraphics]

That’s incredibly kind! Stay tuned for more upcoming videos

[@holden1886]

Absolute magnificent. I have been wondering about how options work for years+! Thank you so much for the in-depth walkthrough!

[@Vail88966]

Thanks for the concise explanation. Very helpful and easier to understand than the one my professor gave.

[@waynelast1685]

3:34 what’s your justification for reducing d2 to d1?

[@financeexplainedgraphics]

d2 is not reduced to d1, there is still a negative sign in d2 that is not in d1. However, the reason I reduce it down from the original long form of d2 = (d1 - sig(T)) is because it is a little easier to see visually, and it highlights that the difference between d1 and d2 are their inverse relationships with regard to volatility (sigma). I show the long form initially because when you see Black-Scholes, much of the time d2 is shown in the long form.

[@waynelast1685]

@@financeexplainedgraphics I see thanks