Home | Previous | Next | Huddart Site Map

Option pricing

Several mathematical models exist to calculate an approximation of the Fair value of an option, among them, the Black-Scholes model and the Binomial model. The values provided by these models depend on at least the following factors:

• Strike price,
• current market price of the Underlying security,
• statistical Volatility of the stock,
• time until the Expiration date, and
• current risk-free interest rate.

Implicitly or explicitly, these models also rely on particular assumptions about the process of innovations in the underlying security price, dividends, and interest rates; transferability of the option right; and the operation of tax law.

---

Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 865-3271
(814) 863-8393 fax
huddart@psu.edu
vCard Home | Previous | Next | Huddart Site Map

http://www.personal.psu.edu/sjh11/OptionGlossary/OptionPricingModels.shtml
was last updated on Wed, Oct 7, 2009.
Today is Fri, Nov 27, 2009.

Unless otherwise noted, all material is:
Copyright ©1995-2009 Steven Huddart. All rights reserved.