Valuing Stock Options

This model, really a template, is used to value European stock options: calls and/or puts. With a call option, you can purch
stock at a given exercise price at a given expiration date. You are hoping that the stock price will increase above the exerc
can make a profit: buy low, sell high. The opposite is true for a put, where you can sell 100 shares of a stock at the exercis
exercise date. Then you are hoping that the stock price will decrease below the exercise price, so that you can sell high, bu

The model uses the well-known lognormal model of stock price changes to simulate the future stock price in cell C11. Thi
on the time till expiration, the riskfree rate, and the volatility of the stock, as well as a standard normal variate. Given this
values of the options, call or put, are calculated in row 15, their discounted values (discounted continuously at the riskfree
calculated and designated as @RISK outputs in row 16, and the means of these discounted values are calculated in row 17
theory, these means approximate the values of the options.

Alternatively, the famous Black-Scholes formula can be used to value the options analytically -- without simulation. These
calculated in row 20. When you run the simulation for, say, 10,000 iterations, you should find that the means from the sim
are within a few pennies of the Black-Scholes values.
 h a call option, you can purchase 100 shares of a
will increase above the exercise price so that you
hares of a stock at the exercise price at the
e, so that you can sell high, buy low.

ure stock price in cell C11. This formula depends

ard normal variate. Given this future price, the
ed continuously at the riskfree rate) are
alues are calculated in row 17. According to

y -- without simulation. These values are

d that the means from the simulation in row 17
Inputs
Current stock price $100.00
Exercise price $100.00
Expiration date (years) 0.50
Annual volatility 20%
Annual risk-free rate 5%
Shares per option 100

Simulation
Stock price at expiration $87.56

Outputs and summary measures

Call Put
Payoff at expiration $0.00 $1,244.24
Discounted payoff $0.00 $1,213.52
Mean discounted payoff $691.85 $440.18

Black-Scholes formulas (analytic, no simulation)

Price of option Call Put
$688.87 $441.97
Parameters for Black-Scholes
d1 0.2475 -d1 -0.2475
d2 0.1061 -d2 -0.1061
N(d1) 0.5977 N(-d1) 0.4023
N(d2) 0.5422 N(-d2) 0.4578
Discounted payoff call - Model!C16
Report: Compact Output Report
Performed By: jites
Date: Thursday, 08 September 2022

Summary Statistics

Statistic Value

Minimum $ 0.00
Maximum $ 4,214.30
Mean $ 684.03
Std. Deviation $ 962.16
Variance 925,760
Skewness 1.5839
Kurtosis 5.0849
Median $ 136.65
Mode $ 0.00
Left X $ 0.00
Left P 5%
Right X $ 2,632.32
Right P 95%

Percentiles

Percentile Value

1% $ 0.00
2.5% $ 0.00
5% $ 0.00
10% $ 0.00
20% $ 0.00
25% $ 0.00
50% $ 136.65
75% $ 1,090.70
80% $ 1,378.19
90% $ 2,100.34
95% $ 2,632.32
97.5% $ 3,470.23
99% $ 3,677.16

Change in Output

Rank Name Lower Upper

1 Stock price at expirati $ 0.00 $ 2,909.95

Discounted payoff put - Model!D16
Report: Compact Output Report
Performed By: jites
Date: Thursday, 08 September 2022

Summary Statistics

Statistic Value

Minimum $ 0.00
Maximum $ 2,666.27
Mean $ 440.64
Std. Deviation $ 673.55
Variance 453,667
Skewness 1.5778
Kurtosis 4.6910
Median $ 0.00
Mode $ 0.00
Left X $ 0.00
Left P 5%
Right X $ 1,867.23
Right P 95%

Percentiles

Percentile Value

1% $ 0.00
2.5% $ 0.00
5% $ 0.00
10% $ 0.00
20% $ 0.00
25% $ 0.00
50% $ 0.00
75% $ 727.55
80% $ 924.79
90% $ 1,452.44
95% $ 1,867.23
97.5% $ 2,263.94
99% $ 2,612.36

Change in Output

Rank Name Lower Upper

1 Stock price at expirati $ 0.00 $ 2,017.28