Quantitative Analytics

Pricing Barrier Options with Python

Option products are popular variety of derivative instruments that are traded in the financial markets. As the name suggests, an Option gives its holder the option to execute the option or not. For example, assume that you buy an option from me (by paying me a certain option premium amount) to buy a certain product in 3 months’ time at a certain specific price. Now assume that we are at 3-month maturity date, as you are the buyer of the option it is up to you whether you wish to exercise the option and buy the product OR whether you let the option go away worthless. The buyer of the option will only execute the option if its profitable to them. If not, then they will let the option expire worthless thereby losing only the amount of premium amount paid to the option seller. This is the mechanism of a basic option contract.

Monte Carlo simulation of asset price paths

Founder: FinQuest Institute; www.finquestinstitute.com

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