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magnolija
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Joined: March 26th, 2008, 2:53 pm

Practical option pricing

March 26th, 2008, 4:06 pm

How are the market prices of options (e.g. European and American) determined? Do financial institutions directly use Black-Scholes, binomial or some other model? Are the models somehow modified? Which one is the most popular? How is hedging implemented in practice? Please, note, that I have sufficient theoretical background and wonder about practical issues. Thank you in advance.