The Black–Scholes model is a mathematical description of financial markets and derivative investment instruments. The model develops partial differential equations whose solution, the Black–Scholes formula, is widely used in the pricing of European-style options.A model of price variation over time of financial instruments such as stocks that can, among other things, be used to … [Read more...]
Binomial Option Pricing Model
The binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. The binomial model was first proposed by Cox, Ross and Rubinstein (1979). Essentially, the model uses a "discrete-time" model of the varying price over time of the underlying financial instrument.An options valuation method developed by Cox, et al, in 1979. The … [Read more...]
Bermuda Option:An Overview
A Bermudan option is an option where the buyer has the right to exercise at a set (always discretely spaced) number of times. This is intermediate between a European option—which allows exercise at a single time, namely expiry—and an American option, which allows exercise at any time . For example a typical Bermudan swaption might confer the opportunity to enter into an … [Read more...]
Bermuda Swaption
A swaption with predefined limitations on exercise.The buyer of a swaption has the right to enter into an interest rate swap agreement by some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the counterparty to the swap if the buyer … [Read more...]
Bilateral Netting: Explained
What is Bilateral Netting? Bilateral netting is a legally enforceable arrangement between a bank and a counterparty that creates a single legal obligation covering all included individual contracts.The process of consolidating swap agreements between two parties into a single agreement. This means that a bank’s obligation, in the event of the default or insolvency of one of … [Read more...]