Valuation of a European call option (Black & Scholes model) formula
Financial acronyms
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Description of the Valuation of a European call option (Black & Scholes model) formula
Formula for the evaluation of a European call option on an underlying which does not pay dividends before the expiry of the option, using the Black & Scholes model
Formula
\[ c(s,t) = SN(d1) - Ke^{-rt}N(d2) \] \[
{\small where: d1 = \frac{ln \left( \frac{S}{K} \right ) + \left(r+\frac{\sigma^{2}}{2}\right)t}{\sigma\sqrt{t}} ;} \] \[
{\small d2 = d1 - \sigma \sqrt{t} } \ \]
Symbols
\(K\ \)
Option strike price
\(N\ \)
Standard normal cumulative distribution function
\(r\ \)
\(σ\ \)
Volatility of the underlying
\(S\ \)
Price of the underlying
\(t\ \)
Time to option's expiry
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