Building a Black-Scholes vanilla option pricing tool is one of the best ways to develop an understanding of derivatives pricing. Manipulating inputs and observing the impact on vanilla option prices is far more productive than looking at formulas in a book. This practical links closely to the material developed in Chapter 5.
The first inputs to the pricer are:
The first output is the forward to maturity T:
Test to see how changing the inputs impacts the forward and note what happens when rCCY1 = rCCY2.
European vanilla option payoffs are calculated using spot at maturity and the strike :
As described in Chapter 5