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Option pricing

2.2 The BSOP formula – call option value

After you have identified the five key factors that contribute to the
option’s value, they can be input into the BSOP formula to give the
value of the option.

–rt
Call option value = P N d – P N d e
2
e
1
a
Where
P
2
a
1n + r + 0.5s t
P
e
d =
1
s√t
d = d – s√t
1
2
(Calculate both d 1 and d 2 to 2 decimal places)

Illustrations and further practice

Now try TYU 3 from Chapter 8

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