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Option Pricing

SShaharia8y ago
If d1=1.998 then N(d1)=0.5+0.4767=.9767 But in BPP text material it is written as N(d1)=.5+.4767+82/100(.4772-.4767) my question is why is that so and what is the reason behind using the 82/100 fraction? and is it possible to round the figure 1.998 as 2. Thankyou.
John MoffatJohn MoffatTutor8y ago#1
It is because N(d1) is to 4 decimal places, but you can only look up in the tables for 2 decimal places. So they have approximated between the table figures for 1.99 and 2.00. However, if you round to 2 decimal places (and therefore use 2.00 here) then you will still get the marks. (If you have copied the figures correctly, then they should not have used 82/100 but 92/100, but I have not got the BPP Study Text and so I cannot check :-) )
SShaharia8y ago#2
Sir, will you explain how the fraction 92/100 is calculated. Thankyou.
John MoffatJohn MoffatTutor8y ago#3
The difference between 1.99 and 2.00 is 0.0100. The difference between 1.99 and 1.998 is 0.008 0.0100 - 0.008 = 0.092, so 0.092/0.0100 or 92/100 :-)
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