Download presentation

Presentation is loading. Please wait.

Published byGary Wigglesworth Modified over 2 years ago

1
Options Pricing Using Black Scholes Model By Christian Gabis

2
Variables C = price of the call option S = price of the underlying stock X = option exercise price r = risk-free interest rate T = current time until expiration N() = area under the normal curve σ =standard deviation of stock return

3
The Formula C = S N(d1) - X e -rT N(d2) d1 = [ ln(S/X) + (r + σ2/2) T ] / σ T1/2 d2 = d1 - σ T1/2

4
A Good Calculator http://www.montegodata.co.uk/Consult/BS /bsm.htm http://www.montegodata.co.uk/Consult/BS /bsm.htm Also has many other pricing models Black Scholes typically undervalues options

5
Using Options to Hedge Using options as a kind of insurance Reduces your return Limits your downside Will not work well with small amounts of capital ( too few shares for one option)

6
Example You buy 100 shares of WAG for $36.00 for a position of $3600. Then buy a $30 put to limit your downside. The put option costs you $105 and is good until October. There are 3 possible outcomes for this situation.

7
Outcomes The stock goes to $30 leaving you with a position worth $3000 and a worthless option. Outcome: -$600-$105=- $705 The stock climbs higher to $40 leaving you with a worthless put option and a $4000 position. Outcome : -$105+$400=$295 The stock falls to $25 leaving you with a loss of $1100 and a gain on your option of roughly $500( market price will vary slightly). Your loss was limited because of the insurance effect of the option. Outcome : -$600

Similar presentations

OK

Black-Scholes Pricing & Related Models. Option Valuation Black and Scholes Call Pricing Put-Call Parity Variations.

Black-Scholes Pricing & Related Models. Option Valuation Black and Scholes Call Pricing Put-Call Parity Variations.

© 2018 SlidePlayer.com Inc.

All rights reserved.

Ads by Google

Ppt on online banking security Ppt on indian economic growth since 1990 Sixth sense technology best ppt on surface Ppt on abstract art wallpaper Ppt on machine translation tools Ppt on cloud computing security Ppt on french revolution class 9 Mp ppt online counselling 2013 Ppt on waxes Ppt on bluetooth communication systems