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How to Calculate Black-Scholes Option Pricing

Price European call and put options using the Black-Scholes options pricing model.

The Formula

C = S*N(d1) - K*e^(-rT)*N(d2)

The black-scholes option pricing formula uses the mathematical relationship: C = S*N(d1) - K*e^(-rT)*N(d2). Each variable in the formula represents a measurable quantity that affects the final result.

Step-by-Step Method

  1. 1Identify all input values needed for the black-scholes option pricing calculation.
  2. 2Substitute your known values into the formula: C = S*N(d1) - K*e^(-rT)*N(d2).
  3. 3Perform the arithmetic operations in the correct order (PEMDAS/BODMAS).
  4. 4Check that your result has the correct units and is within a reasonable range.
  5. 5Verify using the interactive Black-Scholes Option Pricing to confirm your answer.

Related Topics

Black-Scholesoptionscallputderivatives

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