Zero Coupon Bonds ($1 Maturity)

Inputs Vasicek CIR

Vasicek (a(b-r)dt + s dz) Bond Price #VALUE! #VALUE!
a 0.2 Long-Term Yield #VALUE! #VALUE!
b 8.000% Interest Rate Delta #VALUE! #VALUE!
Risk Premium 5.000% Interest Rate Gamma #VALUE! #VALUE!
Volatility 2.000% Yield to Maturity #VALUE! #VALUE!

CIR (a(b-r)dt + s r^.5 dz)

a 0.2
b 8.000%
Risk Premium 5.000%
Volatility 2.000%

Other
Current Interest Rate 8.000%
Time to Maturity (years) 5

Go to Sheet:
 Inputs Perpetual Options
Stock Price 40 Call Put
Exercise Price 40 Option Price #VALUE! #VALUE!
Volatility 30.000% Exercise at: #VALUE! #VALUE!
Risk-free interest rate 8.000%
Dividend Yield 8.000%

Go to Sheet:
 Asian

Inputs Geometric Average Price Asian Options

Stock Price 100 Call Put
Exercise Price 100 Black-Scholes #VALUE! ###
Volatility 30.000% Average Price, Continuous #VALUE! ###
Risk-free interest rate 8.000% Average Price, 20 Prices #VALUE! ###
Time to Expiration (years) 5 Average Strike, Continuous #VALUE! ###
Dividend Yield 0.000% Average Strike, 20 Prices #VALUE! ###
# Prices in Average 20
Moneyness for Avg Strike ###
1 Arithmetic Avg Asian (simple Monte Carlo)
Number of simulations 1000 Arithmetic Average Price 22.26636 5.63636
Arithmetic Average Strike 23.93643 6.11805
Iteration Number 5000
Go to Sheet:
Arithmetic Avg Asian (Control Variate)
Arithmetic Average Price 21.88535 5.7789
Arithmetic Average Strike 23.14597 6.32422
Iteration Number 5000

Page 3
 Inputs Power Options
Stock Price 40 Call Put
Exercise Price 40 Price #VALUE! #VALUE!
Volatility 30.000%
Risk-free interest rate 8.000% This computes the price of an
Time to Expiration (years) 0.25 option where the payoff to the
Dividend Yield 0.000% call is max{s^p - k^p,0], with the
Power 2 put defined analogously.

Go to Sheet:
 Binary Options
Inputs Call
Stock Price 40 Black-Scholes #VALUE!
Exercise Price 40 Cash Binary #VALUE!
Volatility 30.000% Asset Binary #VALUE!
Risk-free interest rate 8.000% Up and In Cash #VALUE!
Time to Expiration (years) 1 Up and Out Cash #VALUE!
Dividend Yield 2.000% Up and In Asset #VALUE!
Barrier 50 Up and Out Asset #VALUE!
Down and In Cash #VALUE!
Down and Out Cash #VALUE!
Go to Sheet: Down and In Asset #VALUE!
Down and Out Asset #VALUE!
nary Options
Put
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
 Barriers

Barrier Options
Inputs Call Put
Stock Price 40 Black-Scholes #VALUE! #VALUE!
Exercise Price 40 Up & In #VALUE! #VALUE!
Volatility 30.000% Up & Out #VALUE! #VALUE!
Risk-free interest rate 8.000% Down & In #VALUE! #VALUE!
Time to Expiration (years) 1 Down & Out #VALUE! #VALUE!
Dividend Yield 0.000% Up Rebate #VALUE!
Barrier 50 Down Rebate #VALUE!
Deferred Up Rebate #VALUE!
Go to Sheet: Deferred Down Rebate #VALUE!

Page 7
 Inputs Rainbow Option
Asset 1 Call Put
Price 100 Price #VALUE! #VALUE!
Volatility 25.000%
Dividend Yield 0.000%
Asset 2
Price 100
Volatility 25.000%
Dividend Yield 0.000%
Other
Cash Strike 120
Correlation 0.5
Risk-free rate 0.05
Time to Expiration (years) 1

Go to Sheet:
 Exchange Option
Inputs Black-Scholes
Underlying Asset Call Put
Price 40 Price #VALUE! #VALUE!
Volatility 30.000%
Dividend Yield 0.000% Binomial
Strike Asset Call Put
Price 40 Price #VALUE! #VALUE!
Volatility 0.000%
Dividend Yield 0.000%
Other
Correlation 0
Time to Expiration (years) 0.25
# Binomial Steps 20
Type (0=Eur, 1=Amer) 1

Go to Sheet:
 Inputs Compound Option Prices
Stock Price 45 Call on Call #VALUE!
Exercise Price to buy asset 45 Put on Call #VALUE!
Exercise Price to buy option 2 Call on Put #VALUE!
Volatility 30.000% Put on Put #VALUE!
Risk-free interest rate 4.000% Critical S for compound call #VALUE!
Expiration for Option on Option (years) 0.5 Critical S for compound put #VALUE!
Expiration for Underlying Option (years) 1
Dividend Yield 0.000%

Go to Sheet:
 Inputs Premiums
Stock Price 101 Call
Strike Price 100 Black-Scholes (no-jump) #VALUE!
Volatility (diffusion) 0.3 Jump #VALUE!
Risk-free Rate 0.08 Implied Volatility from jump price #VALUE!
Time to Expiration 1
Dividend Yield 0
Jump frequency (%/year) 0.02
Expected ln(jump) -0.15
Volatility of ln(jump) 0.2

Go to Sheet:
Premiums
Put
#VALUE!
#VALUE!
#VALUE!
 Inputs Call
Stock Price 40 Black-Scholes Price #VALUE!
Exercise Price 35 CEV Price #VALUE!
Volatility Parameter 1.897367 Implied Volatility for CEV Price #VALUE!
Risk-free interest rate 0.08
Time to Expiration (years) 1
Dividend Yield 0
Beta 1

Observed Volatility Implied

by CEV Parameters 0.300000064

Go to Sheet:

The input "volatility parameter" is not the observed volatility of the stock, but
rather the parameter "sigma" in the CEV formula. Observed volatility of the
stock is

sigma*S^((beta-2)/2)

So if we observe volatility of sigma_0, we need to set sigma so that

sigma=sigma_0*S^((2-beta)/2)
 Put
#VALUE!
#VALUE!
#VALUE!
 Inputs Black-Scholes (European)
Stock Price 100 Call Put
Exercise Price 100 Price #VALUE! #VALUE!
Volatility 23.220% Delta #VALUE! #VALUE!
Risk-free interest rate 2.000% Gamma #VALUE! #VALUE!
Time to Expiration (years) 1 Vega #VALUE! #VALUE!
Fixed dividend amount 5.000 Theta #VALUE! #VALUE!
Time until first dividend 0.150 Rho #VALUE! #VALUE!
Time Between Dividends 0.500 Elasticity #VALUE! #VALUE!
# Binomial steps 120
Type (0=Eur, 1=Amer) 1 Binomial European
Call Put
Dividend Information Price #VALUE! #VALUE!
Number of dividends Delta #VALUE! #VALUE!
Over Life of Option 2 Gamma #VALUE! #VALUE!
PV(Dividends) 9.920443 Theta #VALUE! #VALUE!
Prepaid forward price 90.07956

This spreadsheet values options when dividends are a fixed

Go to Sheet:
amount, paid at regular intervals. Some comments:

First, European option valuation is done by substituting the prepaid

forward price (displayed under "dividend information") for the stock
price.

Second, with this substitution, delta (computed in the usual way) is

the number of prepaid forward contracts required to hedge the
option, not the number of shares. In order to correct this, multiply
delta by the ratio of the stock price to the prepaid forward price, and
gamma by the square of this ratio. This is done manually in the
above greek calculations.

Finally, as usual, when you set the binomial calculation to

European, you should see approximately the same answer for the
binomial and Black-Scholes calculations.
 dividends are a fixed
e comments:

e by substituting the prepaid

d information") for the stock

omputed in the usual way) is

s required to hedge the
der to correct this, multiply
he prepaid forward price, and
s is done manually in the

omial calculation to
ely the same answer for the
ns.
 Black Formula (European)
Inputs Call Put
Futures Price 41 #VALUE! #VALUE! #VALUE!
Exercise Price 40 #VALUE! #VALUE! #VALUE!
Volatility 30.000% #VALUE! #VALUE! #VALUE!
Risk-free interest rate 8.000% #VALUE! #VALUE! #VALUE! The format string must be a
two-letter entries, separate
Time to Expiration (years) 0.25 #VALUE! #VALUE! #VALUE!
space and "/" for a new line
# Binomial steps 4 #VALUE! #VALUE! #VALUE! "CP" is the call price, "CD"
Type (0=Eur, 1=Amer) 0 #VALUE! #VALUE! #VALUE! etc.

Implied Volatility Binomial European To see how this works, you

Observed Call Price 2.4 Call Put by changing the first "CP" t
Call Implied Volatility #VALUE! Price #VALUE! #VALUE!
Observed Put Price 3 Delta #VALUE! #VALUE!
Put Implied Volatility #VALUE! Gamma #VALUE! #VALUE!
Theta #VALUE! #VALUE!

The Black formula provides the price of an

Go to Sheet:
option on a futures contract. It is the Black-
Scholes formula with the dividend yield replaced
by the risk-free rate. This changes the formula
for rho, and psi is not defined. The formulas here
are defined as an array function.
Format string (do not delete)
CP+PP/CD+PD/CG+PG/CV+PV/CT+PT/CR+PR/CE+PE

The format string must be a sequence of

two-letter entries, separated by "+" for a
space and "/" for a new line. For example,
"CP" is the call price, "CD" the call delta,
etc.

To see how this works, you can experiment

by changing the first "CP" to "CD".
 Black-Scholes+Binomial

Black-Scholes (European)
Inputs Call Put
Stock Price 100 Price #VALUE! #VALUE!
Exercise Price 26 Delta #VALUE! #VALUE!
Volatility 30.000% Gamma #VALUE! #VALUE!
Risk-free interest rate 5.000% Vega #VALUE! #VALUE!
Time to Expiration (years) 1 Theta #VALUE! #VALUE!
Dividend Yield 2.000% Rho #VALUE! #VALUE!
# Binomial steps 5 Psi #VALUE! #VALUE!
Type (0=Eur, 1=Amer) 0 Elasticity #VALUE! #VALUE!

Implied Volatility Binomial European

Observed Call Price 4.5 Call Put
Call Implied Volatility #VALUE! Price #VALUE! #VALUE!
Observed Put Price 3 Delta #VALUE! #VALUE!
Put Implied Volatility #VALUE! Gamma #VALUE! #VALUE!
Theta #VALUE! #VALUE!

Copyright © 2013 Pearson

Publishing. These spreadsheets
accompany Derivatives Markets
3e by Robert L. McDonald and
are intended for educational use.
Go to Sheet:

Page 19
 Output

Time (yrs) 0.2 0.4 0.6 0.8 1

100 115.0463 132.3564 152.2711 175.1822 201.5405454
73.287902 88.23964 105.546 125.5726 148.7416 175.5405454
87.9709 101.2072 116.4351 133.9543 154.109351
61.59404 74.76842 90.0222 107.6782 128.109351
77.3888 89.03291 102.429 117.8407651
51.2341 62.83833 76.27884 91.84076508
68.07962 78.32306 90.10774377
42.05199 52.26909 64.10774377
European Call 59.89026 68.90150011
Strike = 26 33.90988 42.90150011
Vol = 30.000%; r = 5.000% 52.68600143
Exp = 1 years; Div = 2.000% 26.68600143
u = 1.1505; d = 0.8797
Risk-neutral prob of up = 0.4665
Forward tree

Black = Stock Price

Red Italic=
Italic= Option Price, no exercise
Green Bold Italic == Option
Option Price,
Price, exercise
exercise

Page 20