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AFMDec-q3 Black Scholes Option Pricing calculation

Rrachellai15y ago
Q3) Answer from Question 3:
d1 = [ln(Pa/Pe) + (r + 0·5s2)t]/(st1/2) (from formulae sheet given in examination)
d1 =[ln(340/350) + ((0·04 + 0·5 x 0·42) x 1/6)]/(0·4 x 1/60·5) = –0·055
–d1 = 0·055
N(–d1) = 0·5 + (0·0199 + (0·0239 – 0·0199)/2) = 0·5219[/u]
Put contracts to be bought for a delta hedge = 200,000/(0·5219 x 1,000) = 383·2 rounding to 383 contracts.
Can someone assist how to get the N(-d1)? What formula is this, I am self studying so there is something i am figuring out. Thanks for your help.
Former userFormer user15y ago#1
Figure for N(d) need to take reference with the standard normal distribution table.

If d1 > 0, then we need to add 0.5 to the data find out in the table
If d1 < 0, then we need to minus 0.5 to the data find out in the table

now d1 is 0.055, so we need to find out the figure of 0.055 from the standard normal duistribution table
0.05 is 0.0199
0.06 is 0.0239

as 0.055 is between 0.0199 & 0.0239, that is 0.0199 + [(0.0239 + 0.0199)/2] = 0.0219

so n(d1) = 0.5 + 0.0219 = 0.5219


Without the help of the study group in Open Tuition, I can't passed P4, I will support the group forever.
Rrachellai15y ago#2
Thank you. Brilliant explanation.
Hhuuloc15y ago#3
If d1<0, either (0.5 - data) or (data - 0.5) is correct ???? Please clarify for me.Thanks.
I learn somewhere that (0.5 - data) is correct. But I am not sure.
Former userFormer user15y ago#4
I am afraid I gave a wrong explanation. Let me have some time to find the notes out first!
Former userFormer user15y ago#5
I checked my notes,

if d1 and d2 have a positive value, (data + 0.5)
if d1 and d2 is negative, then 0.5 - data

I am sorry for any inconvenience causes.
Former userFormer user15y ago#6
what is the value option of option at the moment for organization. of course it for value of project but if project is not being started now, will it affect value of entity now ?
and when ever this option is excercised, will it affect organisation's value ?
because at the moment project is instigated, the option is no more !
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