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Six inputs black scholes option pricing model


For American style options you would use the Binomial option pricing model. My spreadsheet currently doesn t price American European options. I plan to add a Binomial model soon.

CHAPTER 5 OPTION PRICING THEORY AND MODELS

Hi Utpaal, yes, you can use whatever price you like to calculate the implied volatility - just enter the closing prices in the market price field.

Option Software

Underlying price is the price at which the underlying security is trading on the market at the moment you are doing the option pricing. For example, if you are pricing an option on . Morgan (JPM) stock and the stock is trading at at the time you are doing the pricing, you enter as underlying price.

The Black-Scholes Option Pricing Model

Hi Marez, are you pricing a stock option or an employee stock option? Can you give me more details please? I m not sure exactly what long term incentive payments mean in this case. How much are the payments etc?

Hi Bruce,

No, that shouldn t be the case. I was just about to reply with that, but then checked a few scenarios using my spreadsheet to see how close it the volatility at 85% an ATM option comes close to OTM/ITM options are way out. Same when the vol is higher or lower than 85%. Not sure why this happens.

Did you read this somewhere or did someone else mention this to be the case?

Hi, Peter. When I entered the various possible values they all gave me the same fair price.

Asking for help on another site*, I got a hint that led me to the discovery of my mistake: my B& S formula was rounding the fair prices below to .

Thus, with out-of-the-money options, their fair prizes where always below given a wide range of volatilities, and my formula was returning to all of them.

I changed the formula and everything came into place.

Thanks for your attention.

Best regards from Brazil.

* Precision & Implied Volatility

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The Black-Scholes model assumes there is no directional bias present in the price of the security and that any information available to the market is already priced into the security.

In 6978, mathematicians Fischer Black, Myron Scholes, and Robert Merton published their formula for calculating the premium of an option. Known as the Black-Scholes model, this formula accounted for a variety of factors that affect premium:

The Black-Scholes Model is a formula for calculating the fair value of an option contract, where an option is a derivative whose value is based on some underlying asset.


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