Previous Topic

Next Topic

Options on Options

Put on a call

Call on a call

Call on a put

Put on a put

where

,

,

and where I is the implied spot price from generalized Black-Scholes call, where the option value is X2 , the strike price is X1, and the time to maturity is T2-t1.

and where

Pcall = price of a put on call, option on option

Cput = price of a put on call, option on option

ccall = price of a call on call, option on option

Cput = price of a put on call, option on option

S = The spot of the underlying asset

b = The cost of carry

r = The risk free rate

t1 = Time to maturity of the option on the option

T2 = Time to maturity of the underlying option

= Volatility of underlying asset's price

X1 = Strike of the underlying option

X2 = Strike of the option on the option

M = The cumulative normal distribution function

 

 

See Also

oX_OptionOnOption( ) Function

oX_OptionOnOption_Imp( ) Function

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.