Prof. Robert C. Metron and Prof. Myron S. Scholes have been awarded Nobel prize in Economics in 1997 for having developed a pioneering formula for the valuation of derivatives and other stock options. In fact, they developed this method in collaboration with Prof. Fischer Black, who died in 1995. In 1973 Black and Scholes published what has come to be [...]
For listed options the Black-Scholes model can be directly applied for valuation and it is commonly used by practitioners for such a purpose. However, for options that are not explicitly stated but embedded as part of the condition of another instrument and thus implicit, a less direct method (incorporating the standard binomial model) is commonly used by practitioners. This mode [...]
An alternative form of valuation is to use the Black-Scholes formula for a put, which is: P = Xe –r(T-t) [1-N(d2)] – S [1-N(d1)] Where d1 and d2 are as given in the section deriving a call option. Note that [1 - N(d2)] is the same as N(-d2) and [1 - N(d1)] is the same as N(-d1). Using the same [...]