Introduction to the Black-Scholes formula | Finance & Capital Markets | Khan Academy

Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/black-scholes/v/implied-volatility?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/derivative-securities/interest-rate-swaps-tut/v/interest-rate-swap-2?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: Interest is the basis of modern capital markets. Depending on whether you are lending or borrowing, it can be viewed as a return on an asset (lending) or the cost of capital (borrowing). This tutorial gives an introduction to this fundamental concept, including what it means to compound. It also gives a rule of thumb that might make it easy to do some rough interest calculations in your head. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy

Comments

1. Thank you ! This helps me a lot. Keep up the good work :)
2. for d1 ...Would we not need to discount the X (exercise price) by e^-rT ?
3. 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.
4. I thought the third guy was going to be called Formula
5. kindly be advised date pf expiration T is expressed in days or weeks or what? if I'm calculating C0, thank u
6. 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.
7. 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.
8. 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.
9. Sigma squared simply means the variance. Excellent explanation
10. 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!
11. Really appreciate with your effort in making this video. I could really get the meaning and applied to tests or exams. THX!
12. I like the "rough speaking", it made things more clear to me.
13. 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.
14. Shall it be possible for you to recommend a book on the topic.
15. Edward Thorp was originally the pioneer of this formula but hadn't publicise it straight away
16. Honorable mention to Louis Bachelier who did the preliminary research that led to the Black Scholes Formula.
17. 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. 
18. This is a great video, but if you want hands on pricing Options using the Black Scholes model, and other option models, check out Zoonova.com. Freemium financial web app.
19. Fantastic video!
    
20. What about american options?