UN-13B

A
1
2
3
4
5
6
7
8
9

Black-Scholes Option-Pricing Formula

S
X
r
T
Sigma

25
25
6.00%
0.5
30%

d1

0.2475 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))

0.0354 <-- d1-sigma*SQRT(T)

10 d2
11
12 N(d1)
13 N(d2)
14
15 Call price
16 Put price
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

Current stock price

Exercise price
Risk-free rate of interest
Time to maturity of option (in years)
Stock volatility

0.5977 <-- Uses formula NormSDist(d1)

0.5141 <-- Uses formula NormSDist(d2)
2.47 <-- S*N(d1)-X*exp(-r*T)*N(d2)
1.73 <-- call price - S + X*Exp(-r*T): by Put-Call parity
1.73 <-- X*exp(-r*T)*N(-d2) - S*N(-d1): direct formula
Stock
price

Call
price

10 0.00001
12.5 0.00089
15 0.01626
17.5 0.11640
20 0.45875
22.5 1.21718
25 2.47067
27.5 4.17428
30 6.21317
32.5 8.46707
35 10.84408

Intrinsic
value
0
0
0
0
0
0
0
2.5
5
7.5
10

Black-Scholes Price versus

Intrinsic Value

15
10
5
0
5

15

25

Stock price S ($)

Call price

Intrinsic value

35

45

UN-13C

BLACK-SCHOLES MODEL IN VBA

100
100
1.00
10.00%
40.00%

Call price
Put price

20.3185 <-- =CallOption(B3,B4,B5,B6,B7)

10.8022 <-- =PutOption(B3,B4,B5,B6,B7)

start
step

130

115

100

85

=B10
Put
10.8022 <--This is the header of the Data Table
50.6639
45.8941
41.2918
Call and Put Prices Using
36.9079
Black-Scholes
32.7857
60
28.9576
put
call
50
25.4437
40
22.2520
30
19.3803
20
16.8179
10
0
14.5482
12.5506
Stock price ($)
10.8022
9.2791
7.9578
6.8154
5.8306
4.9839
4.2574
70

40
45
50
55
60
65
70
75
80
85
90
95
100
105
110
115
120
125
130

Call
20.3185
0.1802
0.4104
0.8081
1.4241
2.3019
3.4739
4.9600
6.7683
8.8965
11.3341
14.0645
17.0669
20.3185
23.7954
27.4740
31.3316
35.3469
39.5002
43.7736

55

To the right is a data

table that gives the
call and put values for
various excercise
prices.

=B9

Call and put prices ($)

S
X
T
Interest
Sigma

40

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

40
5

Page 301

Black-Scholes Option-Pricing Formula

1
2
3
4
5
6
7
8
9

S
X
r
T
Sigma
d1

10 d2
11
12 N(d1)

45
50
8.00%
1
10.000%

Current stock price

Exercise price
Risk-free rate of interest
Time to maturity of option (in years)
Stock volatility

-0.2036 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))

-0.3036 <-- d1-sigma*SQRT(T)
0.4193 <-- Uses formula NormSDist(d1)
0.3807 <-- Uses formula NormSDist(d2)

13 N(d2)
14
15 Call price
1.2977 <-- S*N(d1)-X*exp(-r*T)*N(d2)
16
17
DATA TABLE
18
1.2977 <-- =B15, Table header
19
15% 2.18576
20
16% 2.36461
21
17% 2.54368
5
22
18% 2.72291
4
23
19% 2.90225
24
20% 3.08168
3
25
21% 3.26116
2
26
22% 3.44068
27
23% 3.62020
1
28
24% 3.79971
0
29
25% 3.97921
15%
17%
19%
21%
23%
30
26% 4.15866
Sigma
31
27% 4.33806
B-S call price ($)

Call Price and Sigma

Page 3

25%

27%

Page 302

Black-Scholes Option-Pricing Formula

1
2
3
4
5
6
7
8
9

S
X
r
T
Sigma
d1

10 d2
11
12 N(d1)
13 N(d2)
14
15 Call price

45
50
8.00%
1
25.116%

Current stock price

Exercise price
Risk-free rate of interest
Time to maturity of option (in years)
Stock volatility

0.0246 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))

-0.2266 <-- d1-sigma*SQRT(T)
0.5098 <-- Uses formula NormSDist(d1)
0.4104 <-- Uses formula NormSDist(d2)
4.0000 <-- S*N(d1)-X*exp(-r*T)*N(d2)

Page 4

Page 304

BLACK-SCHOLES IMPLIED VOLATILITY

The VBA module attached to this spreadsheet defines a function called
CallVolatility(S,X,T,interest,target_call_price).To use this function fill in the relevant rows
(in boldface). The cell labeled "Implied call volatility"contains the function.
S
X
T
Interest
Target call price
Implied call volatility

51.00
50.00
1
8.00%
6.00
15.35% <-- =CallVolatility(B7,B8,B9,B10,B11)

Data Table
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50

15.35%
7.51%
11.96%
15.35%
18.45%
21.39%
24.25%
27.07%
29.84%
32.59%
35.33%
38.05%
40.77%

Implied Call Volatility

Implied volatility

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
5

Target call price ($)

Page 5

11

S
X
r
T
Sigma

25
25
6.00%
0.5
30%

d1

0.2475 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))

0.0354 <-- d1-sigma*SQRT(T)

10 d2
11
12 N(d1)
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43

"BANG FOR THE BUCK" WITH OPTIONS

1
2
3
4
5
6
7
8
9

N(d2)
Call price
Put price
Call bang
Put bang

Current stock price

Exercise prie
Risk-free rate of interest
Time to maturity of option (in years)
Stock volatility

Data table: Effect of S on "b

0.5977 <-- Uses formula NormSDist(d1)

0.5141 <-- Uses formula NormSDist(d2)
2.47 <-- S*N(d1)-X*exp(-r*T)*N(d2)
1.73 <-- call price - S + X*Exp(-r*T): by put-call parity
6.0483 <-- =B12*B3/B15
5.8070 <-- =NORMSDIST(-B9)*B3/B16

15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

Data table: Effect of S and T

Data table header:

S, stock price -->

6.0483
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

1
2
Data table:
3 Effect of S on "bang"
4 Calls
Puts
5
<-- Data table header
6
2.3828 14.3100
7
2.6095 13.0925
8
2.8695 11.9770
9
3.1641 10.9534
10
11
12

3.4933
3.8555
4.2481

10.0134
9.1503
8.3581

13
4.6675
7.6321
14
5.1100
6.9676
15
5.5716
6.3605
16
6.0483
5.8070
17
6.5367
5.3034
18
7.0335
4.8463
19
7.5358
4.4321
20
8.0414
4.0578
21
8.5481
3.7202
22
23
Data table:
24 Effect of S and T on "call bang"
25
26 T--option time to exercise
27
0.25
0.5
0.75
28
25.8566 14.1767 10.1698
29
23.3203 12.9886
9.4124
30
20.9931 11.9035
8.7218
31
18.8591 10.9122
8.0913
32
16.9055 10.0067
7.5154
33
15.1222
9.1804
6.9891
34
13.5006
8.4274
6.5082
35
12.0334
7.7424
6.0691
36
10.7137
7.1205
5.6682
37
9.5347
6.5572
5.3025
38
8.4892
6.0483
4.9691
39
7.5694
5.5896
4.6655
40
6.7664
5.1773
4.3892
41
6.0706
4.8074
4.1379
42
5.4720
4.4764
3.9094
43
4.9598
4.1807
3.7019

1
8.1113
7.5625
7.0623
6.6056
6.1882
5.8062
5.4565
5.1362
4.8426
4.5737
4.3272
4.1012
3.8941
3.7043
3.5303
3.3708

"Bang for the Buck"

The Price Elasticity of Calls and Puts
as a Function of the Exercise Price X
16
14

Profit elasticity--"bang"

12
10
8
6
4
Calls

Puts

0
15

17

19

21

23

25

Option exercise price, X ($)

27

29

31