## oBAW( ) Model Definition

 The Barone-Adesi Whaley quadratic approximation is defined as follows:  = Generalized Black Scholes call formula. = Generalized Black Scholes put formula. c = call option value. p = put option value. S = spot price of the underlying asset. X = exercise price (strike). r = risk-free interest rate, expressed with continuous compounding. b = cost of carry for the underlying asset, expressed with continuous compounding. vol = volatility of the relative price change of the underlying asset. T = time to maturity measured in years (actual/365 basis). N(.) = cumulative normal distribution of (.). S* is the critical spot price for the call option that satisfies the following: This equation can be solved by using the Newton-Raphson Iteration Procedure. The slope of RHS* at Si is: S** is the critical spot price for the put option that satisfies the following This equation can be solved by using the Newton-Raphson Iteration Procedure. The slope of RHS** at Sj is:  Copyright 2013 Hedgebook Ltd.