blackScholes: Black-Scholes Formula (European Option)
Description
The famous Black-Scholes Option Pricing Formula based on the Lognormal Models. This formula can be extended to barrier options, currency options, options on futures, etc.
Usage
blackScholes(S, K, r, T, sigma)
Arguments
S
The Stock Price
K
The Strike Price
r
The risk-free continuously compounded interest rate
T
The expiration date
sigma
The volatility
Details
The Black-Scholes Formula is based on the assumption of geometric brownian motion and can be shown to satisfy the Black-Scholes Partial Differential Equation. It can be thought of as the combination of an asset-or-nothing option and a cash-or-nothing option