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Exercise price in BSOP

This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.

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November 16, 2021 at 2:39 am #640730
saifalikhan1022@gmail.com
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Sir, I want to know as to why we don’t consider the PV of the exercise price in option valuation.
For. eg if in investment appraisal if we are going to invest in 2 years time & after 2 years our exercise price will be 2m.
We only take 2m not the PV of 2m.
Why sir?
November 16, 2021 at 9:03 am #640753
John Moffat
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We do consider the PV 🙂
As I explain in my free lectures on this, when in the formula we multiply Pe by the term which includes the term ‘e’ in it then this is discounting Pe on a continuous basis (rather than discounting yearly as we usually do when discounting).
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