Black and Scholes Options Evaluation Message Board

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Strategies & Market Trends : Black and Scholes Options Evaluation

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To: Uri Miller who wrote (14)	12/10/1996 11:02:00 PM
From: John Kinder	of 44

Uri - Unfortuanately the example you referred to has an error in it >I don't understand how they got the number which are listed next to the grades. If you add the grades & divide by 7, you get u = 88.43, not the 88 they show. (Rule #1: Never trust ANYTHING on the internet - verify it for yourself!) If you calculate (x - u)squared using 88.43, your answers will agree with those listed by the grades. > Also, is this a good explanation of standard deviation or is it more complicated? Thats the one and only formula. > Furthuremore, is this formula trying to predict the future value of the option on the expiration date or is trying to give a fair value for what the price should currently be? I assume your talking about Black Scholes. In that case, one of the parameters to BS is the # of days to option expiration. Thus BS predicts fair market value of an option on any day you choose, based upon what value you plug in. (Actually it's usually expressed in years, not days. Just take # days and divide by 365). - John

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