Black Scholes

[nazia]

Hi,

Could someone please explain the possible reasons for why option prices on a particular stock calculated using the Black-Scholes option pricing formula would be different to the real life option prices?

Thanks.

 

[Martinghoul]

There could be a few possibilities...

The mkt-maker might not be using Black-Scholes to price the option or might be using different inputs into the model than you.

 

[gooseman]

skew as gamma says

plus there are different models binomial/BS

 

[zambuck]

A good site and software that works within Excel....

I have these but never had chance to look at it in any depth....

Trading and Investment Tools by Peter Hoadley

also below.....

Option Pricing & Stock Price Probability Calculators by Peter Hoadley

 

[gooseman]

Volatility Skew

done 🙂

 

[gooseman]

click on the link then you can have smile as well!

if only it was so easy......

 

[nazia]

Thanks guys. That really helps.