Derivative Pricing

Derivative pricing is the process of determining the fair value of financial instruments whose value depends on the price of underlying assets, like stocks or commodities. Common derivatives include options and futures. The price of a derivative reflects expected future movements in the underlying asset's price, interest rates, dividends, and time until expiration. Quantitative finance uses mathematical models, such as the Black-Scholes formula, to help traders and investors assess risk and make informed decisions about buying or selling these financial contracts, ensuring they align with market expectations and conditions.