All about BlackScholes Model
Learn from colleagues and experts
Join now. Completely free.
Log in

Explanation of BlackScholes Option Valuation Equation LAKSHMAN PURIHELLA, Member
The main equation for the BlackScholes Option Valuation is as follows:
C = S.N(d1.  X.eRT. N(d2. (12)
where:
C is the value of call option
S is the current market price of shares in question
X is the future exercise price
R is the risk free interest rate per annum
T is the time to expiry (in years)
e is the mathematical constant 2.718, used to calculate value on a continuous compounding basis.
(X.eRT is the future value or amount, at time T, of a sum of money X invested @ R% on continuous compounding basis. If compounded annually, the amount at R% compound rate of interest at time T is X(1 + r/100)T, which is roughly equal to X.eRT)
N(d1) and N(d2) represent the cumulative area under the normal distribution curve for a 'z'* value of d1 and d2 where
d1 = log(S / X) RT
V.T
+ +. V.T
d2= d1– V.T
And log (SIX) is the natural log (to the base 'e') of SIX.
*'z' is the standard normal variable (observation value...



Do you wish to study further? You can learn more from the summary, forum, discussions, lessons, courses, training, instructions, expert tips, best practices and education sources. Register.





Special Interest Group Leader



More on BlackScholes Model






