Pricing Derivatives

Pricing derivatives involves determining the value of financial contracts whose worth is derived from an underlying asset, such as stocks or commodities. Key factors impacting their price include the asset's current price, its volatility, time until expiration, and interest rates. Common models used for pricing include the Black-Scholes model and binomial models. These tools help traders and investors estimate potential future prices and assess risk, allowing them to make informed decisions about buying or selling these financial instruments. Understanding how derivatives are priced is essential for effective risk management in finance.