48 research outputs found
A Black-Scholes user's guide to the Bachelier model
To cope with the negative oil futures price caused by the COVID-19 recession,
global commodity futures exchanges temporarily switched the option model from
Black--Scholes to Bachelier in 2020. This study reviews the literature on
Bachelier's pioneering option pricing model and summarizes the practical
results on volatility conversion, risk management, stochastic volatility, and
barrier options pricing to facilitate the model transition. In particular,
using the displaced Black-Scholes model as a model family with the
Black-Scholes and Bachelier models as special cases, we not only connect the
two models but also present a continuous spectrum of model choices