You will recall, this is the Black-Scholes model, where Call = current call option value SO=...
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You will recall, this is the Black-Scholes model, where Call = current call option value SO= current Stock price K = strike price N(d) = the probability that a random draw from a standard normal distribution will be less than d. In other words, you can view N(d) loosely as the risk-adjusted probability that the option will expire in the money. T = time a=implied vol Ln = natural log Call SoN(d₁) - Ke-TN(d₂) = Put Ke N(-d₂)-SoN(-d₁) d₁ = d₂ = d₂ - o√T In(So/K)+(r+0²/2)T GVT a. Describe how d1 is similar to a z-score calculation? b. Using Black Scholes, why does it make sense that increased volatility would lead to a higher call price? c. Using Black Scholes, why does it make sense that the larger T (time), all else equal should lead to a higher Options price? You will recall, this is the Black-Scholes model, where Call = current call option value SO= current Stock price K = strike price N(d) = the probability that a random draw from a standard normal distribution will be less than d. In other words, you can view N(d) loosely as the risk-adjusted probability that the option will expire in the money. T = time a=implied vol Ln = natural log Call SoN(d₁) - Ke-TN(d₂) = Put Ke N(-d₂)-SoN(-d₁) d₁ = d₂ = d₂ - o√T In(So/K)+(r+0²/2)T GVT a. Describe how d1 is similar to a z-score calculation? b. Using Black Scholes, why does it make sense that increased volatility would lead to a higher call price? c. Using Black Scholes, why does it make sense that the larger T (time), all else equal should lead to a higher Options price?
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a The calculation of d in the BlackScholes model is similar to a zscore calculation because it invol... View the full answer
Related Book For
Introduction to Management Science A Modeling and Cases Studies Approach with Spreadsheets
ISBN: 978-0078024061
5th edition
Authors: Frederick S. Hillier, Mark S. Hillier
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