Page 155 - AFM Integrated Workbook STUDENT S18-J19
P. 155
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
1
e
2
a
Where
P
a
2
ln + 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)
143
