by Abderrahmene Ben Romdhane, Chiheb Ben Hammouda, Michael Samet, Raul F. Tempone
Continue on SelfMadeQuant
Suggested foundations for volatility models and surfaces and options and derivatives pricing. Specialist prerequisites vary by paper.
Follow diffusion-based models and their assumptions.
Separate conditional volatility from observed returns.
Build replication and risk-neutral probabilities in a tractable model.
Distinguish pricing probabilities from physical forecasts.
Study a correlated stochastic-variance model.
Interpret prices across strikes and expiries.
Connect the pricing equation, closed-form value and implied volatility.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.