Today's nov

Expiry Month

Strike Price $15.00

Stock Volatility 45%

Risk-free Rate 4.0% 20-Jul/12

Date when Black-Scholes estimate is required = 20-Jul/12 Current Stock Price =

$15.20 $1.74

required CAGR =

Resulting Black-Scholes estimate =

Example: Suppose Today's Date is 20-Jul/12 and the Expiry Month is nov (Then the call option expires on 16-Nov/12 in 119 days da Suppose, too, that we're interested in an option with Strike Price of $15.00 Suppose, too, that we assume a Volatility of 45% and a Risk-free Rate of 4.0% We require the Black-Scholes estimate for 20-Jul/12, assuming a Stock Price of $15.20 (at that time). According to Black-Scholes, the option would be worth $1.74 (at that time). Notes: To get to $16.74, the stock must grow at the annual rate of 34% Fill in ONLY those values within a red square
If you don't know the Stock Volatility or Risk-free Rate then stick in some values so that the Black-Scholes estimate agrees with KNOWN option premiums for the stock. (Example: If the Stock Price Today is $30, then adjust Volatility and Risk-free Rate so that the Black-Scholes estimate agrees with Today's option premium. If, for example, the option is selling for $6.06, then the Black-Scholes estimate is improved if the Volatility is changed from 30% to 25%.)

Option Expires Nov 16/12 119 days

B-S

stock/strike

days

stock $15.20

1.7388

1%

119

34%

on expires on 16-Nov/12 in 119 days days.)

5.20 (at that time).

Black-Scholes calculations d1 0.2308 0.5913 d2 -0.0262 0.4896

Complicated (!) Calculation of Expiry stuff 2012 Dates expires

zero 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Index 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

today =

Jul 20/12 nov 1-nov 16-Nov-12 Expiry

nov/2012 Fridays 1-nov/2012 2-nov/2012 1 3-nov/2012 4-nov/2012 5-nov/2012 6-nov/2012 7-nov/2012 8-nov/2012 9-nov/2012 1 10-nov/2012 11-nov/2012 12-nov/2012 13-nov/2012 14-nov/2012 15-nov/2012 16-nov/2012 1

17

0 0 0 0 0 0 0 0 0 0 0 0

17-nov/2012 17-nov/2012 18-nov/2012 18-nov/2012 19-nov/2012 19-nov/2012 20-nov/2012 20-nov/2012 21-nov/2012 21-nov/2012 22-nov/2012 22-nov/2012 23-nov/2012 23-nov/2012 1 24-nov/2012 25-nov/2012 26-nov/2012 27-nov/2012 28-nov/2012