Derivatives pricing – the theoretical aspects

Learning the factors that go into setting derivatives pricing is crucial. An in-depth knowledge of financial product pricing is essential to make sound investing decisions, whether you’re on the buying or selling side of the market. After all, knowing how a product’s attributes interact to produce value is necessary to decide what to offer or bid for a financial product. It is crucial to comprehend the price of financial assets. The capital asset pricing model and its variants, based on discounted cash flow, help establish values for financial assets. However, unlike traditional assets such as stocks and bonds, derivatives have their challenges, but they also have several unexpectedly straightforward properties. In the next section, we will discuss the important concept of money’s time value, which forms the basis for securities pricing.

The time value of money

The value of money fluctuates over time. What...