Valuation of a European call option (Black & Scholes model) formula

Tags: options valuation and pricing

Description of the Valuation of a European call option (Black & Scholes model) formula

Formula for the evaluation of a European call option on an underlying which does not pay dividends before the expiry of the option, using the Black & Scholes model

Formula

c (s, t) = S N (d 1) - K e^{- r t} N (d 2)

w h e r e : d 1 = \frac{l n (\frac{S}{K}) + (r + \frac{σ^{2}}{2}) t}{σ \sqrt{t}};

d 2 = d 1 - σ \sqrt{t}

Symbols

K

Option

N

Standard normal cumulative distribution function

r

σ

of the

S

Price of the

t

Time to option's expiry

Additional information related to this formula

Related definitions from the glossary of financial terms

Call option • Option • Risk-free interest rate

Related calculators

Option strategy calculator • Pricing of an option (Black & Scholes)