The Black-Scholes model estimates the theoretical value of a European call option whose ultimate value depends on the price of the stock at the expiration date. The formula requires five input variables—the option’s strike price, the risk-free rate, the stock’s current price, the time to expiration, and the standard deviation of stock returns.
Financial institutions such as banks, investment firms, and hedge funds use the Black-Scholes model to price options and determine the fair value of financial derivatives to manage the risk exposure. Individual investors who trade options also employ the model to estimate the price of an option and determine whether it is overpriced or underpriced.
This open-access Excel template is a useful tool for statisticians, financial analysts, data analysts, and portfolio managers.
Black-Scholes Option Pricing Model: Valuing a Call Option is among the topics included in the Derivatives module of the CFA Level 1 Curriculum. Gain valuable insights into the subject with our Derivatives course.
You can also explore other related templates such as—Put-Call Parity: Valuing a Call Option, Put-Call Parity: Valuing a Put Option, and Merton Option Pricing Calculator.
