Option Pricing in Excel
Over the course of the last twenty years, financial mathematics has driven the development and evolution of numerical solvers and optimizers. Option pricing in Excel is a skill that takes several years to fully master. This is because the student has to learn exotic concepts such as binomial lattices, partial differential equations, finite difference schemes, Ito’s Lemma, stochastic math and more.
The student typically has to master the functionality available within Excel spreadsheets. Then the student has to embark on learning VBA (Visual Basic for Applications); this enables these budding quantitative analysts to write algorithm programs, such as those required to create binomial trees (and price the corresponding options through backwards induction).
Spreadsheets are widely used in the finance industry, and have become the de facto numerical tool of choice. Therefore, the importance of learning how to use these valuable tools cannot be underestimated.