Black-Scholes is a pricing model used to determine the fair price or theoretical value for a call or put option based on six variables such as volatility, type of option, underlying stock price, time, strike price, and risk-free rate.
Questions tagged [black-scholes]
42 questions
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Does the Black-Scholes Model apply to American Style options?
After reading the Wikipedia article on the Black-Scholes model, it looks to me like it only applies to European options based on this quote:
The Black–Scholes model (pronounced /ˌblæk ˈʃoʊlz/1) is a mathematical model of a financial market…
Shane
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How does a delta signify the probability of expiring in the money
I was watching this video on option greeks
and the guy said (at 34 min): If an option has a delta of 34, it has a 34% probability of expiring in the money? Is it possible to understand it intuitively without getting into the math of Black Scholes…
Victor123
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Can the Delta be used to calculate the option premium given a certain target?
I’m struggling for a while now with a question about options, namely 'which is the best option to buy?'. I have various books on options, but I’m not an mathematician and don’t have (yet) any extensive hands-on experience with options.
According to…
Jura
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What is the Meaning of the Black-Scholes Value?
We are currently learning about the Black-Scholes Merton Model. I understand the process of finding the call option. However, I'm wondering what the answer actually means.
For example:
Stock Price = 95
Exercise Price = 100
Maturity = 2…
dj5
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2 answers
Implied or historical volatility to calculate theoretical options price with black scholes?
According to the black scholes model, volatility is one of the variables to calculate the fair price of an option. However, it doesn't specify which volatility should I use. Should I take the annualized standard deviation or should I use the implied…
Luis Cruz
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How are stock options priced?
I was reading the Wikipedia article about the Black-Scholes model, and it says this:
The key financial insight behind the equation is that one can perfectly hedge the option by buying and selling the underlying asset in just the right way and…
Jon
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How to calculate Black-Scholes using Google Sheets?
I'd like to calculate Black-Scholes using Google Sheets based on this formula: https://www.erieri.com/blackscholes.
Here are the parameters I'm using in the form:
Stock price = 60.89
Option strike price = 40
Maturity = .27
Risk-free rate =…
4thSpace
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Calculating fair value of an oanda.com box option
How do I calculate the theoretical "fair value" of an oanda.com box option?
More specifically, how do I calculate the probability that a given
FOREX parity will enter a given range in a given period of time.
Example: probability that USDCAD will…
user1731
3
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3 answers
How to calculate the standard deviation of stock returns?
I'm trying to learn the the Black–Scholes option pricing formula and one of the elements of that formula (according to http://bradley.bradley.edu/~arr/bsm/pg04.html) is the "standard deviation of stock returns".
I know if I download a CSV file of…
roartechs
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Difference between Black-Scholes, Binomial models and Market price in European index options?
Need some help!
I have calculated the theoretical price of an index option using BS and Binomial models and are now comparing the three. While BS and Binomial have approximately the same value, market price is way off. The Option is an European…
Nic Loogatev
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2 answers
Does sigma in Black-Scholes attempt to take into account future events?
I am learning basic information about Black-Scholes wrt options pricing.
I see that the standard deviation of the stock price is taken into account. This seems to only rely on existing (historical) data. The formula does not seem to take into…
Ken - Enough about Monica
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Black scholes, futures, and American vs. European options
After having taken a look at this question about American and European options I was under the impression that the main difference between American and European options in Black Scholes pricing was factoring in dividends. When discussing options on…
ford prefect
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Why IV and stock price are inversely related
What is the reason that Implied Volatility and Stock Price are inversely related?
Is it possible to understand this qualitatively without getting into the math of the Black-Scholes formula?
Victor123
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why volatility increases price for ITM call options?
Similar questions have been asked here, but I'm not able to find this exact question. For a European call option, if it's very in-the-money, wouldn't a higher volatility decrease the probability it finishes in-the-money? But if it had like a 0…
APerson
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Why do implied volatility changes at different strike prices exactly coincide with one another?
Please see the image of the Implied volatility of different strike prices separated by 100 points. This is the recorded data of the actual market.
As it can be clearly observed that the Implied volatility of all strikes moves almost with 1…
Vaibhav Sharma
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