Black-Scholes model (intro)
General · Mathematics
Study notes
Q: S=100, K=100, T=1, r=5%, σ=20%. Compute d₁, d₂ and call price. d₁ = [ln(1)+(0.05+0.02)(1)]/0.2 = 0.07/0.2 = 0.35. d₂ = 0.35-0.2 = 0.15. N(0.35) ≈ 0.6368, N(0.15) ≈ 0.5596. C = 100(0.6368)-100e^-0.05(0.5596) = 63.68-53.23 = ₹10.45. (Famous formula!)