Valuation of Contingent Claims: Part II – BSM Model & Greeks (2025 Level II CFA® Exam –Module 2)

Valuation of Contingent Claims Part II covers the Black Scholes Merton model and the Option Greeks for CFA Level II 2025. Professor Forjan explains how volatility, strike price, time, and rates drive option value, then shows how to interpret D1, D2, N(D1), and N(D2). You will also see applications to European options on equities, currencies, and futures, plus delta hedging and gamma risk.

In this video, you’ll learn:
How the Black-Scholes-Merton Model extends the simple option pricing model
The role of volatility as the fifth variable in the BSM framework
How to interpret D1, D2, N(D1), and N(D2) in option pricing
The logic behind European options on equities, currencies, and futures
How to interpret and apply Option Greeks — Delta, Gamma, Vega, Rho, and Theta
What Delta-hedged portfolios and dynamic hedging mean for CFA exam questions

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Topic 7 – Derivatives
Module 2– Valuation of Contingent Claims: Part II – BSM Model & Greeks
LOS: Identify assumptions of the Black–Scholes–Merton option valuation model.
LOS: Interpret the components of the Black–Scholes–Merton model as applied to call options in terms of a leveraged position in the underlying.
LOS: Describe how the Black–Scholes–Merton model is used to value European options on equities and currencies.
LOS: Describe how the Black model is used to value European options on futures.
LOS: Interpret each of the option Greeks
LOS: Describe how a delta hedge is executed.
LOS: Describe the role of gamma risk in options trading.
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