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Download free ebooks at bookboon.com 84 Corporate Finance Options The Black-Scholes formula calculates the option value for an infinite number of sub-periods.
Black-Scholes Formula for Option Pricing
(51) Value of call option = [ delta · share price ] – [ bank loan ]
= [ N(d1) · P ] – [ N(d2) · PV(EX) ] where
o N(d1) = Cumulative normal density function of (d1) o d1 o
o P = Stock Price
N(d2) = Cumulative normal density function of (d2) o d2 o PV(EX) = Present Value of Strike or Exercise price = EX · e-rt log>P / PV ( EX )@ V t
Vt d1 V t The Black-Scholes formula has four important assumptions:
- Price of underlying asset follows a lognormal ra...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.
- Spring '12