Question
Hello, I'm having the most difficult time trying to figure out the BSOPM. S=18, X=15, r(f)=.03, var(x)=.04, t=18 months (1.5 years) Find d(1) first (LN(18/15)+(.03+.04/2)*1.5)
Hello,
I'm having the most difficult time trying to figure out the BSOPM.
S=18, X=15, r(f)=.03, var(x)=.04, t=18 months (1.5 years)
Find d(1) first
(LN(18/15)+(.03+.04/2)*1.5) / (.2*1.2247)=1.051
The find d(2)=1.051-.2449=.8058
Look each of these up on a normal probability table (it is ok to round to the closest value on the table):
Nd(1)=.8554; Nd(2)=.7882
C = S N(d1) - X*e^(-rt)*N(d2)
18*.8554-15*e^(-.03*1.5)*.7882=15.3972-11.303=4.0944
Intrinsic Value 18-15=3
So time value is 4.0944-3=1.0944
C=S*N(d1)-X*e^(-rt)*N(d2)
C is the market price of the call
S is the current value of the underlying spot asset
N(d1) is a complicated probability that most agree is the hedge ratio of a risk free spot/option portfolio.
X is the exercise price or strike price
e^(-rt) is a continuous time present value function
N(d2) is another probability
My professor indicated that you can set this up in Excel and everything that i input his not correct. Is there a way to explain this so I can use it in Excel or overall? I can send over my Excel doc and may there is an issue with my formula.
I am unable to attach my document that provides further information, is there a way to send this via email?
Thank you,
Shanna
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