How can you price an option that doesn't expire?
Lattice model (finance)
How can you price an option that doesn't expire?
Imagine you're betting on a soccer match's outcome, but you can only cash out at the final whistle.
The Black-Scholes model helps you figure out the fair price for this bet by considering the stock's price movement over time, without worrying about cashing out early.
Example
If the soccer match (stock price) is expected to rise, the fair price for your bet (European call option) increases.
Remember this
The Black-Scholes formula gives you a fair bet price by accounting for the time until the final whistle (maturity date).
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
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the Black-Scholes formula prices
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the Black-Scholes assumptions are
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Write the Black-Scholes formula for a European call option: C = S·N(d₁) - K·e^(-rT)·N(d₂)
C = S·N(d₁) - K·e^(-rT)·N(d₂)
Educational content, not financial advice.
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