7 views

Uploaded by Vijay Nathani

detail ananlysis

- [JP Morgan] Abritrage Pricing of Equity Correlation Swaps
- 10.1.1.131
- Firstamerican bank Credit default swaps
- Black-Sholes Excercise Excel File
- CFP Mock Test Investment Planning
- STOCK-OPTION-LATEST-NEWS-BY-THEEQUICOM-FOR-TODAY-02-SEPTEMBER-2014
- Optimal Delta Hedging
- 20 Session Financial Modelling_Rajiv Bhutani
- Pso
- AMF201 Cost Accounting
- What Investors Need to Know About Executive Pay 9Mar091[1]
- Black Scholes Valuation
- MCE of LogNorm Int Rate Models - Schlogl
- bbf
- Iron Condor - Dan Harvey
- Pricing Derivatives Feb 2011
- Hedging Util
- B04050
- Group 9_ Stermon Mills Incorporated
- CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS

You are on page 1of 12

On

Black and Scholes model with real time data of TATA steel ltd

PROF. (Dr.) RAJKUMARI SONI

PARUL INSTITUTE OF ENGINEERING & TECHNOLOGY (MBA Dept.) LIMDA, DIST. VADODARA.

TABLE OF CONTENT

Sr. No.

Particulars

Page No.

1.

2.

Calculation of call and put prices based on real time data Conclusion

3. 4

6 9

Bibliography

10

In 1973 Fisher Black and Myron Scholes brilliantly developed the BlackScholes option pricing formula. Assuming that the price of the underlying stock follows a lognormal random variable, they found a closed form solution for the price of a European call and European put. Essentially their method was to extend the arbitrage pricing approach developed in Section III by letting the length of a period in the binomial model go to zero. Using the binomial approximation found in Section V, they were able to find the following formulas for pricing European puts and calls.

the

The BlackScholes model of the market for a particular stock makes following explicit assumptions:

There is no arbitrage opportunity (i.e., there is no way to make a riskless profit). It is possible to borrow and lend cash at a known constant risk-free interest rate. It is possible to buy and sell any amount, even fractional; of stock (this includes short selling). The above transactions do not incur any fees or costs (i.e., frictionless market). The stock price follows a geometric Brownian motion with constant drift and volatility. The underlying security does not pay a dividend.

Let S0 = Todays stock price. t = Duration of the option. Sx = Exercise or strike price. r = risk-free rate. This rate is assumed to be continuously compounded. = Annual volatility of stock y = percentage of stock value paid annually in dividends.

Where,

ln( S 0 / X ) (r 2 / 2)T d1 T

ln( S0 / X ) (r 2 / 2)T d2 d1 T T

p X e rT N (d 2 ) S 0 N (d1 )

Where, N(d1) is the probability P(x<d1),1-N(d1) is the probability P(x>d1). Since a normal distribution is systematic, we can write:

Calculation of call and put prices based on real time data of TATA steel limited.

Call price:

d1

ln( S 0 / X ) (r 2 / 2)T

0.118

= 0.0911

ln( S0 / X ) (r 2 / 2)T d2 d1 T T

= (-0.0187)

Step:2 value of N(d1) and N(d2). As per the normal distribution value of both the variable are as follows: N(d1)= N(0.0911)=0.5359 N(d2)=N(-0.0187)= 0.4920

= 13.83 INR

= Max(-1.65,0)

=0

GC = Max [(ST - SX C0), - C0] = Max [(299.8 - 301.45 13.83), - 13.83] = Max [(-15.48), - 13.83] = - 13.83

Put price:

We have value of N(d1) and N(d2) which are 0.6443 and 0.3632 respectively

N (d 1 ) =

= 1- 0.4920 =0.5080

Put price:

p X e rT N (d 2 ) S 0 N (d1 )

=12.46 INR

= Max (1.65, 0)

= 1.65

Time value of put = Put price + Terminal value = 12.46 + 1.65 = 14.11

10

Conclusion:

As per the assumptions Black and Scholes showed that it is possible to create a hedged position, consisting of a long position in the stock and a short position in the option, whose value will not depend on the price of the stock.

To buy a one share of TATA steel ltd investors have to pay call price of Rs 84.7 with an expiry of 30th may 2013.

To buy one put share of TATA steel ltd the investors have to pay a Put price of Rs. 83.52 with an expiry of 30th May 2013.

11

Bibliography

Books:

Derivatives and risk management : By Sundaram Janakiramanan Derivatives and risk management : By Rajiv Shrivastava

Websites:

www.nseindia.com www.moneycontrol.com

12

- [JP Morgan] Abritrage Pricing of Equity Correlation SwapsUploaded bymarco_aita
- 10.1.1.131Uploaded byKhaleel Ullah
- Firstamerican bank Credit default swapsUploaded bysarafmonica
- Black-Sholes Excercise Excel FileUploaded bynelson bolivar
- CFP Mock Test Investment PlanningUploaded byDeep Shikha
- STOCK-OPTION-LATEST-NEWS-BY-THEEQUICOM-FOR-TODAY-02-SEPTEMBER-2014Uploaded byRiya Verma
- Optimal Delta HedgingUploaded byHenry Chow
- 20 Session Financial Modelling_Rajiv BhutaniUploaded bySaksham Goyal
- PsoUploaded bynobie125
- AMF201 Cost AccountingUploaded byTakangNixonEbot
- What Investors Need to Know About Executive Pay 9Mar091[1]Uploaded bydavid3036
- Black Scholes ValuationUploaded byVivek Singh
- MCE of LogNorm Int Rate Models - SchloglUploaded byJaphy
- bbfUploaded byempireearnsmoney
- Iron Condor - Dan HarveyUploaded byHernan Diaz
- Pricing Derivatives Feb 2011Uploaded bydawnherald
- Hedging UtilUploaded byAndra-Cristina Tugui
- B04050Uploaded byVladimir Poponin
- Group 9_ Stermon Mills IncorporatedUploaded byDiptatanu Ganguly
- CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONSUploaded byfinnthecelt
- format.xlsxUploaded byVaibhav Badgi
- Val PacketUploaded byKumar Prashant
- Review of OptionsUploaded byHasmik Marutyan
- Primal Dual Ms 2004Uploaded byAakash Khandelwal
- MD&AUploaded byIRL Mining
- Profit and Loss Questions and AnswersUploaded byPrakash Velayudham V
- 3Q 2010 Buyout Stats.pdfUploaded bywnicoloff
- The 5 Most Dangerous ErrorsUploaded bySteve Scrymgeour
- Ptrans PP StudyUploaded byinseniorshah
- Quick Review QuestionsUploaded byManish

- GMW3032Uploaded byMarcos Morais
- 2012 Analysis Epri Txline Polymer Insulator, Fibreglass FailureUploaded byRylai Crestfall
- Pioneer Elite PRO-510HD Owners Manual- ARB1527Uploaded byAndrew Warren
- Mangalore Crash ReportUploaded byBabu Ravula
- DNV 1-503-1_2009Uploaded byHadinoorizadegan
- SambaUploaded byKIERYE
- Forex WalkthroughUploaded byPhuthuma Beauty Salon
- Xtremio Brocade Best PracticesUploaded byjonemat
- Moor Field UpdatedUploaded byIrini Chatziralli
- USG Thyroid.pptxUploaded byMakmun Rad
- Vocal Pitch ExercisesUploaded bySheldon Japil
- edtech 1 syllabus 2015-2016Uploaded byapi-290128092
- country evaluation and selection.pptUploaded byvishesh_2211_1257207
- 44magazine_FinalMay20thUploaded byMurrayBulger
- How to Perform Ganesh Chaturthi Puja at HomeUploaded bysanjay parkar
- . Konokol ExerciseUploaded bySERT
- im_impl_enuUploaded byShankar Vaitheeswaran
- Pumpkin Cream Cheese Muffins _ Annie's EatsUploaded byDonald Buchwalter
- Oscillators Simplified - Delton T HornUploaded byrobertlivingstone
- Galiani&Gertler&Schargrodsky-JPE2005.pdfUploaded byPrateek Sharma
- Clean Water Act.pptUploaded byCDM
- Buddy DoyleUploaded byAntonio Deko
- Resistor ValuesUploaded byВладимир Малић
- Ed 147880Uploaded byRabia Chohan
- Classificationasutomobile 150916043707 Lva1 App6892Uploaded byParthiban Parasuraman
- Plugin-postgresql Stored ProceduresUploaded byKirti Gupta
- The Tudors Course SyllabusUploaded bymfric016016
- Experimental Study About the Agglomeration Behavior in Slurry Prepared by AddingUploaded byJosé Angel Escobar Medina
- car-Showroom-Management-System.docUploaded byRajesh Ramakrishnan
- Plate TectonicsUploaded byTrembleton