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Holder Extendible Options

Extendible Call

where

,

,

and where

I1 is the implied spot found from a General Black-Scholes call, where the option value is A, the Strike is X2 and the time to expiry is T2-t1.

I2 is the implied spot found from a General Black-Scholes call, where the option value is I2-X1+A, the Strike is X2 and the time to expiry is T2-t1.

where

c = Price of European call

S = The spot of the underlying asset

b = The cost of carry

r = The risk free rate

t1 = Original maturity date

T2 = Time to extended expiry of the option

= Volatility of underlying asset's price

M = The cumulative normal distribution function

N = The cumulative normal distribution function

X1 = The original strike price

X2 = The strike price after extension

Extendible put

where

,

,

and where

I1 is the implied spot found from a General Black-Scholes put, where the option value is X1-I1+A, the Strike is X2 and the time to expiry is T2-t1.

I2 is the implied spot found from a General Black-Scholes put, where the option value is A, the Strike is X2 and the time to expiry is T2-t1.

where

p = Price of European put

S = The spot of the underlying asset

b = The cost of carry

r = The risk free rate

t1 = Original maturity date

T2 = Time to extended expiry of the option

= Volatility of underlying asset's price

M = The cumulative normal distribution function

N = The cumulative normal distribution function

X1 = The original strike price

X2 = The strike price after extension

 

See Also

oX_Extendible( ) Function

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