The Black-Scholes Formula Explained

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In this video, I will give an intuitive explanation of the famous Black-Scholes formulas used to price European call and put options through the decomposition of the payoff and the expected value of the option.
I will give a simple explanation of the different components of the Black-Scholes formula: N(d2), the probability that the option will be exercised, and N(d1) which incorporates as well by how far the option can be in-the-money.

0:00 Introduction
0:12 Black-Scholes Formula for European Calls and Puts
0:20 Option Payoff Decomposition
2:15 Stock Price Diffusion Process
2:36 Probability of being Exercised
3:31 N(d1) vs N(d2)
4:09 Expected Value Decomposition

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[guimli]

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