Option Pricing Using the Black Scholes Formula
Options are derivative securities, representing a right (not obligation) to buy or sell the underlying security at a given price on or before a specified period of time.
C(0) = S(0)N(d1) – Ke(-rT)N(d2)
Where, d1 = ln(S(0)/K) + (r + σ2/2)T and d2 = d1 - σ√T
C(0): call option price
S(0): current price of the underlying asset or spot price.
N(d): cumulative probability distribution function
r: annualized risk-free interest rate
σ: volatility
T: maturity time or expiry time.
K: strike price or exercise price.