August 2010
Beginner to intermediate
495 pages
11h 48m
English
Content preview from Fixed-Income Securities and Derivatives Handbook, Second Edition
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APPENDIX I
The Black-Scholes Model in Microsoft Excel
The figure on the following page shows the spreadsheet formulas required to build the Black-Scholes model in Microsoft Excel. The Analysis Tool-Pak add-in must be available, otherwise some of the function references may not work. Setting up the cells in the way shown enables the fair value of a vanilla call or put option to be calculated. The latter calculation employs the put-call parity theorem.
| Price of underlying | 100 |
| Volatility | 0.0691 |
| Option maturity | 3 months |
| Strike price | 99.5 |
| Risk-free rate | 5% |
Microsoft Excel Calculation of Vanilla Option Price
| CELL C | D | ||
|---|---|---|---|
| 8 | Underlying price, S | 100 | |
| 9 | Volatility % | 0.0691 | |
| 10 | Option maturity years | 0.25 | |
| 11 | Strike price, X | 99.50 | |
| 12 | Risk-free interest rate % | 0.05 | |
| 13 | |||
| 14 | |||
| 15 | CELL FORMULAE: ... | ||
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