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3
votes
3answers
185 views

How is the Efficient Frontier drawn?

I know efficient frontier is the collection of expected return on a portfolio and the level of risk(e.g. standard deviation). What I don't understand is that is the efficient frontier really drawn ...
0
votes
0answers
99 views

Black-Scholes model and options evaluation

may someone explain me how to use a Black-Scholes model in order to identify if a defined option is a valuable investment? Thank you in advance.
2
votes
2answers
1k views

Understanding the concepts of market maker and broker

Wikipedia says: A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the ...
10
votes
2answers
856 views

Who creates money? Central banks or commercial banks?

Which of these is a better description of money creation: Scenario 1: Central bank creates money Customer A deposits $10 at his bank. Customer B wants to borrow $100. The bank is in good standing ...
1
vote
1answer
366 views

Deriving the put-call parity

I am looking at the proof of the put-call parity, $P+S=C+Ee^{-rT}$ The proof begins by defining two portfolios with same strike price $E$ and time to expiry $T$: 1. A call $C(E,T)$ plus cash ...
4
votes
1answer
590 views

Option Theta: What conditions are needed for Theta > P/N, where P = option price, and N = days to expiration?

The wikipedia definition for Theta is: And people frequently refer to the picture below, to show what typically happens with an option's value as a function of time; we can note this is ...
9
votes
4answers
297 views

Why is a stock that pays a dividend preferrable to one that doesn't?

I understand that a dividend is a way for a company to return money to shareholders. But I'm not quite understanding why it is preferable to capital appreciation and putting the money to work ...