VBA6 - Black-Scholes Option Pricing Model Seite 1 von 3

 
Black-Scholes Option Pricing Model
 
The value of a call option (based on the original B-S model) has been
  described as a function of five parameters:

  The following assumptions have been used in developing valuation models

for options: 1. The rate of return on the stock follows a lognormal distribution.
This means that the logarithm of 1 plus the rate of return follows the normal,
  or bell-shaped, curve. (The assumption ensures continuous trading - the
stock rate of return distribution is continuous.) 2. The risk-free rate and
  variance of the return on the stock are constant throughout the option’s life.
(The two variables are nonstochastic.) 3. There are no taxes or transaction
costs. 4. The stock pays no dividends. (This assumption ensures no jumps in
  the stock price. It is well known that the stock price falls by approximately the
amount of the dividend on the ex-dividend date.) 5. The calls are European,
which does not allow for early exercise. The B-S option pricing model is
  formulated as followed:

 
      

where N(•) = the cumulative normal distribution function of (•).

In(•) = the natural logarithm of (•).

Once we have the price for a call option, we can derive the price of the put
option which written against the same stock with the same exercise price
using the put-call parity developed by Stoll in 1969:

In this example, we derived call and put option price based on the Black-
Scholes model. The function procedures are used. The first function, SNorm
(z), computes the probability from negative infinity to z under standard normal
curve. This function provides results similar to those provided by
NORMSDIST( ) on Excel. The second function and the third function
compute call and put prices, respectively. The call price is computed on cell
C13, and the put price on cell C14. The two formulas are listed on B17 and
B18 for reference purpose.

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VBA6 - Black-Scholes Option Pricing Model Seite 2 von 3

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Free trial. '*                  Cumulative Standard Normal Distribution                              *
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Options Trading Function SNorm(z)

    c1 = 2.506628
Course     c2 = 0.3193815
How To Trade On     c3 = -0.3565638
The Options     c4 = 1.7814779
Market Get Your     c5 = -1.821256
Free Trading     c6 = 1.3302744
    If z > 0 Or z = 0 Then
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              w = 1
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    Else: w = -1
    End If
    y = 1 / (1 + 0.2316419 * w * z)
    SNorm = 0.5 + w * (0.5 - (Exp(-z * z / 2) / c1) * _
            (y * (c2 + y * (c3 + y * (c4 + y * (c5 + y * c6))))))
            
End Function

'**********************************************************************
'*            Black-Scholes European Call Price Computation *
'**********************************************************************

Function Call_Eur(s, x, t, r, sd)

    Dim a As Single
    Dim b As Single
    Dim c As Single
    Dim d1 As Single
    Dim d2 As Single

    a = Log(s / x)
    b = (r + 0.5 * sd ^ 2) * t
    c = sd * (t ^ 0.5)
    d1 = (a + b) / c
    d2 = d1 - sd * (t ^ 0.5)
    Call_Eur = s * SNorm(d1) - x * Exp(-r * t) * SNorm(d2)
    
End Function

'*********************************************************************
'*            Black-Scholes European Put Price Computation *
'*********************************************************************

Function Put_Eur(s, x, t, r, sd)

    Dim a As Single
    Dim b As Single
    Dim c As Single
    Dim d1 As Single
    Dim d2 As Single

    a = Log(s / x)
    b = (r + 0.5 * sd ^ 2) * t

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VBA6 - Black-Scholes Option Pricing Model Seite 3 von 3

    b = (r + 0.5 * sd ^ 2) * t
    c = sd * (t ^ 0.5)
    d1 = (a + b) / c
    d2 = d1 - sd * (t ^ 0.5)
    CallEur = s * SNorm(d1) - x * Exp(-r * t) * SNorm(d2)
    Put_Eur = x * Exp(-r * t) - s + CallEur
    
End Function

http://www.anthony-vba.kefra.com/vba/vba6.htm 31.10.2008