The Black-Scholes model estimates the theoretical value of a European put 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, which helps them manage their risk exposure. Individual investors who trade options can also employ the model to estimate the price of an option and determine whether it is overpriced or underpriced. In academic research, the Black-Scholes model provides a benchmark for comparing the performance of other pricing models.
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 Put 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 Put Option, Put-Call Parity: Valuing a Call Option, and Options Pricing and Valuation: Binomial Model.
