BLACK SCHOLES OPTION PRICING Basics

Inputs

Stock Price Now (S0) $69.81 69

Standard Dev - Annual (s) 71.65% 7

Riskfree Rate- Annual (r) 4.95% 5

Exercise Price (X) $70.00 70

Time To Maturity - Years (T) 0.5777 6  ln  S 0 

/ X    r  s 2 / 2 T / s  T 

Outputs d1  s T
d1
d2
N(d1)
N(d2)
Call Price (C0)

-d1 C0  S0 N  d1   Xe  rT N  d 2 
-d2
N(-d1)
N(-d2)
Put Price (P0)

P0   S0 N  d1   Xe  rT N  d 2 
BLACK SCHOLES OPTION PRICING Continuous Dividend
Inputs
Dynamic Chart of Black Scholes Option Pricing
Option Type Call Put 1

Option Price
$60

Stock Price Now (S0) $69.81 69 $50

$40
Standard Dev - Annual (s) 71.65% 7
$30
Riskfree Rate- Annual (r) 4.95% 5
$20
Exercise Price (X) $70.00 70
$10

Time To Maturity - Years (T) 0.5777 6 $0

$0 $20 $40 $60 $80 $100 $120 $140
Dividend Yield (d) 1.00% 1 Stock Price Now

Outputs
d1
d2
N(d1)
N(d2)  ln  S 0  
/ X    r  d  s 2 / 2 T / s  T 
Call Price (C0)

-d1
-d2
C0  S 0 e  dT N  d1   Xe  rT N  d 2 
N(-d1)
N(-d2)
Put Price (P0) P0   S0 e  dT N   d1   Xe  rT N  d 2 

Data Table: Sensitivity of Option Price to Stock Price Now

Input Values for Stock Price Now (P)
Output Formula:
Option Price
Intrinsic Value

BLACK SCHOLES OPTION PRICING Greeks

Inputs Call Greeks Greeks by Stock Price Now
Greek Value

Delta 12.00
Stock Price Now (S0) $69.81 69 Theta
10.00
Gamma
Standard Dev - Annual (s) 71.65% 7 8.00
Vega

Rho 6.00
Riskfree Rate- Annual (r) 4.95% 5
4.00

2.00

0.00
$0 $20 $40 $60 $80 $100 $120 $140
Stock Price Now
 Greek
10.00

8.00

6.00

4.00
Exercise Price (X) $70.00 70 Put Greeks
2.00
Delta
Time To Maturity - Years (T) 0.5777 6 Theta 0.00
Gamma $0 $20 $40 $60 $80 $100 $120 $140
Dividend Yield (d) 1.00% 1 Stock Price Now
Vega

Rho Greeks by Time To Maturity

Greek Value
Outputs 1 12.00
d1
10.00
d2
8.00

6.00

4.00

2.00

0.00
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Time To Maturity

Delta  e  dT N  d1 

Theta  
 d1  s e dT
S0 N �
 dS0 N  d1  e  dT  rXe  rT N  d 2 
2 T
 d1 
where N � = normal density evaluated at d1

Gamma 
 d1  e dT
N�
S0s T
 d1  = normal density evaluated at d1
where N �
 Gamma 
 d1  e dT
N�
S0s T
 d1  = normal density evaluated at d1
where N �
Call Greeks
Delta (¶Call / ¶Stock Price)
Theta (-¶Call / ¶Time To Mat)
Gamma (¶2Call / ¶Stock Price2)  d1  e  dT
Vega  S0 T N �
Vega (¶Call / ¶Std Dev)
Rho (¶Call / ¶Riskfree Rate)
 d1  = normal density evaluated at d1
where N �

Put Greeks Rho  XTe  rT N  d 2 

Delta (¶Put / ¶Stock Price)
Theta (-¶Put / ¶Time To Mat)
Gamma (¶2Put / ¶Stock Price2) Delta  e  dT N  d1 
Vega (¶Put / ¶Std Dev)
Rho (¶Put / ¶Riskfree Rate)
Theta  
 d1  s e  dT
S0 N �
 dS0 N  d1  e  dT  rXe  rT N  d 2 
2 T
 d1 
where N � = normal density evaluated at d1

Call Gamma

Call Vega

Rho   XTe  rT N   d 2 
Data Table: Sensitivity of the Selected Greek to Stock Price Now
Input Values for Stock Price Now
Output Formula:
Selected Greek

Time To Maturity
Data Table: Sensitivity of the Selected Greek to Time To Maturity Index
Input Values for Time To Maturity Index
Output Formula:
Selected Greek
BLACK SCHOLES OPTION PRICING Implied Volatility

Inputs
Option Type: 1=Call, 2=Put 1 1 1 1 1 2 2 2 2 2
Stock Price Now (S0) $1,513 $1,513 $1,513 $1,513 $1,513 $1,513 $1,513 $1,513 $1,513 $1,513
Standard Dev - Annual (s) 21.66% 17.31% 14.77% 16.01% 13.81% 15.66% 14.73% 14.02% 11.25% 6.31%
Riskfree Rate- Annual (r) 4.62% 4.62% 4.62% 4.62% 4.62% 4.62% 4.62% 4.62% 4.62% 4.62%
Exercise Price (X) $1,450 $1,500 $1,520 $1,540 $1,600 $1,450 $1,500 $1,520 $1,540 $1,600
Time To Maturity - Years (T) 0.2416 0.2416 0.2416 0.2416 0.2416 0.2416 0.2416 0.2416 0.2416 0.2416
Dividend Yield (d) 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62%
Observed Option Price $105.60 $63.40 $45.50 $40.00 $14.50 $17.70 $32.40 $39.50 $42.00 $76.50

Outputs
d1
d2
N(d1)
N(d2)
Model Call Price (C0)

-d1
-d2
N(-d1)
N(-d2)
Model Put Price (P0)

Solver
Difference (observed - model)
Graph
Implied Volatility from Calls
Implied Volatility from Puts
 Implied Volatility
"Scowl" Pattern of Implied Volatilities
23%
21%
19%
17%
15%
Ca
13%
lls
11%
9%
7%
5%
3%
$1,425 $1,450 $1,475 $1,500 $1,525 $1,550 $1,575 $1,600 $1,625
Exercise Price

BLACK SCHOLES OPTION PRICING Exotic Options

Continuous Dividend Black Scholes Inputs Additional Exotic Option Inputs

Stock Price Now (S0) $69.81 69 Asset 2 Stock Price Now (S2) $70.00 70

Standard Dev - Annual (s) 71.65% 7 Asset 2 Standard Dev (s2) 70.1% 7

Riskfree Rate- Annual (r) 4.95% 5 Corr(Asset 1, Asset 2) (r) 0.20 12

Exercise Price (X) $70.00 70 Asset 2 Dividend Yield (d2) 2.0% 2

Time To Maturity - Years (T) 0.5777 6 Time to Chooser Decision (tc) 0.20 2
Dividend Yield (d) 1.00% 1 Cash Payoff (Z) $60.00 60

E...
Gap Amount (g) $4.00 4

Supershare Lower Bound (XL) $70.00 70

Continuous Dividend Black Scholes Outputs Supershare Upper Bound (XH) $75.00 75
d1

E x otic Option Va lue

d2 Exchange Option
N(d1)
N(d2) Min of Two Assets

Call Price (C0) Max of Two Assets Exotic Options by Stock Price Now
12.00
Chooser
-d1
10.00
-d2 Cash-Or-Nothing Call
N(-d1) Cash-Or-Nothing Put 8.00
N(-d2) 6.00
Asset-Or-Nothing Call
Put Price (P0)
Asset-Or-Nothing Put 4.00

Gap Call 2.00

Gap Put 0.00

$0 $20 $40 $60 $80 $100 $120 $140
Supershare
Stock Price Now
11

S  s 2  s 22  2 rss 2

w1 
ln  S2 S 0   d  d 2  0.5S 2 T  
S T
 w2  w1  S T

Exchange  S2 e  d2T N  w1   S0e  dT N  w2 

Min of two assets  S0  Exchange

Exotic Options
S
w1
Max of two assets  S0  Exchange
w2
Exchange Option
ln  S0 X    r  d  T  0.5s 2 �
tc
Minimum of Two Assets w3 
Maximum of Two Assets
s tc

w3
Chooser  
Chooser  Call  Xe  rT N  w3  s tc  S 0e  dT N   w3 

Binary Options(Digital Options): Cash-Or -Nothing Call  Ze  rT N  d 2 

Cash-or-Nothing Call
Cash-or-Nothing Put
Asset-or-Nothing Call Cash-Or -Nothing Put  Ze  rT N  d 2 
Asset-or-Nothing Put
Gap Call
Gap Put Asset -Or -Nothing Call  e  dT S 0 N  d 2 
wL
wH
Asset -Or -Nothing Put  e  dT S 0 N  d 2 
 Asset -Or -Nothing Put  e  dT S 0 N  d 2 
Supershare

Gap Call  e  dT S 0 N  d1    X  g  e  rT N  d 2 

Gap Put   X  g  e  rT N  d 2   e  dT S0 N  d1 

wL 

ln  S0 X L   r  d  0.5s 2 T 
s T

wH 

ln  S0 X H   r  d  0.5s 2 T 
s T

S0 e d2T
Supershare  N  wL   N  wH  �
�
XL � �

Data Table: Sensitivity of the Selected Exotic Option to Stock Price Now
 Input Values for Stock Price Now
Output Formula:
Selected Exotic Option