Chose two different models used to price call options. Detail each model and focus on comparing and contrasting the models.
Models of Pricing Call Options
There are some models used by the financial manager for pricing call options. These models are Black-Scholes model, Binominal model, The Delta etc. This tutorial considers two pricing model of call options that are discussed in detail as follow:
Black-Scholes Model: The Black-Scholes model is an effective method that is used to compute a hypothetical call price. It requires five key determinants for an option price that are volatility, stock price, time to expiration, strike price and short-term risk free interest rate. This model accepts constant volatility and European pricing that are exercised only at the maturity period of the call options (Brigham & Ehrhardt, 2010). The price of call options through this theoretical model can be computed with the following formula:
OP = SN (d1) - X e-r t N (d2)
In this d1 and d2 can ...
Models for price call options are examined.