What is the Black-Scholes Calculator?
The Black-Scholes calculator is a tool used to estimate the theoretical price of European-style options. It is based on the Black-Scholes model, a mathematical framework developed by Fischer Black and Myron Scholes in 1973. The model takes into account various factors that influence option prices, such as the current stock price, strike price, time to expiration, risk-free interest rate, and volatility.
Black-Scholes Calculator
Inputs
To use the Black-Scholes calculator, you need to provide the following inputs:
- Stock Price: The current price of the underlying stock.
- Strike Price: The price at which the option contract can be exercised.
- Time to Expiration: The time remaining until the option contract expires, expressed in years.
- Risk-Free Rate: The annual risk-free interest rate, typically based on government bond yields.
- Volatility: The annualized standard deviation of the stock’s returns, representing the stock’s price fluctuations.
Outputs
After entering the required inputs, the Black-Scholes calculator will provide the following outputs:
- Call Price: The theoretical price of a European call option with the given inputs.
- Put Price: The theoretical price of a European put option with the given inputs.
It’s important to note that the Black-Scholes model makes several assumptions, such as constant volatility, no dividends, and the ability to continuously trade the underlying asset. While it provides a theoretical estimate, real-world option prices may deviate from the model’s output due to market conditions and other factors.