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Unformatted text preview: professionals from all over the world BBA in Global Business MBA in International Management / International Marketing DBA in International Business / International Management MA in International Education MA in Cross-Cultural Communication MA in Foreign Languages Innovative – Practical – Flexible – Affordable Visit: www.HorizonsUniversity.org Write: [email protected] Call: www.HorizonsUniversity.org 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  2 Vt d1  V t The Black-Scholes formula has four important assumptions: - Price of underlying asset follows a lognormal ra...
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