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In finance, Black's approximation is an approximate method for computing the value of an American call option on a stock paying a single dividend. It was described by Fischer Black in 1975. [1] The Black–Scholes formula (hereinafter, "BS Formula") provides an explicit equation for the value of a call option on a non-dividend paying stock. In ...
The European analytic formula for this model based on a risk neutral argument is derived in Analytic Formula for the European Normal Black Scholes Formula (Kazuhiro Iwasawa, New York University, December 2, 2001). [3] The implied volatility under the Bachelier model can be obtained by an accurate numerical approximation. [4]
Being relatively simple, the model is readily implementable in computer software (including a spreadsheet). Although computationally slower than the Black–Scholes formula, it is more accurate, particularly for longer-dated options on securities with dividend payments. For these reasons, various versions of the binomial model are widely used ...
A box spread consists of a bull call spread and a bear put spread. The calls and puts have the same expiration date. The resulting portfolio is delta neutral. For example, a 40-50 January 2010 box consists of: Long a January 2010 40-strike call; Short a January 2010 50-strike call; Long a January 2010 50-strike put; Short a January 2010 40 ...
In finance, a price (premium) is paid or received for purchasing or selling options.This article discusses the calculation of this premium in general. For further detail, see: Mathematical finance § Derivatives pricing: the Q world for discussion of the mathematics; Financial engineering for the implementation; as well as Financial modeling § Quantitative finance generally.
A cheap starting valuation can help balance out your portfolio during bouts of volatility.