Application of Black-Scholes Option Pricing Model to Steel Markets

by Ben Chia Jr

Publisher - Cebu Metal Corporation, Philippines

Category - General Novel

Outlines some of the concepts and mechanics of trading options for steel products, such as forward contracts, options to sell, and options to buy. Avoids promoting such trading to focus instead on discovering and pricing existing steel options. Expresses certain steel contract provisions, such as performance bonds, as embedded options. Uses the Black-76 formula of the Black-Scholes model to calculate prices for these embedded steel options. Provides examples for billet, HRC and debar. Quantifies credit extended in steel contracts. Introduces the concept of implied volatility.

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