Understanding N(d2) of Black Scholes

[Arka Bose]

Understanding the N(d2) is quite important as it is not only required in option pricing but also required to value debt and model probability of default which is very much prevalent in the part 2 curriculum.
I learnt a lot from here, anybody can have a look
https://financetrainingcourse.com/e...holes-formula-an-intuitive-derivation-of-nd2/

 

[Mkaim]

Understanding the N(d2) is quite important as it is not only required in option pricing but also required to value debt and model probability of default which is very much prevalent in the part 2 curriculum.
I learnt a lot from here, anybody can have a look
https://financetrainingcourse.com/e...holes-formula-an-intuitive-derivation-of-nd2/

Yes - I think most of this is already captured in David's work below.

https://forum.bionicturtle.com/threads/merton-model-a-summary-of-the-issues.5646/

 

[David Harper CFA FRM]

Thanks @arkabose that's interesting, I like his site (I follow it). For myself, I don't exactly find his derivation highly intuitive because I don't think it's a strong picture on the connection between the asset price distribution and the Z-score. But that's just my opinion. FWIW, here is an old video I did on understanding N(d2) as a variation on Merton's PD = N(-DD), but it's all in the same link that @Mkaim provided. Thanks!

 

[David Harper CFA FRM]

his tutorial references an author I haven't read, Lars Tyge (ie, "the following treatment is based on material presented in Lars Nielson’s excellent and highly recommended text book on the subject), and his website at http://www.ltnielsen.com/.

He has what seems to be an interesting, accessible paper "Understanding N(d1) and N(d2): Risk-Adjusted Probabilities in the Black-Scholes Model."

I attached it, if it's good we'll add it to Resources (when we create the BSM resource)