Financial Toolbox™

blsprice - Black-Scholes put and call option pricing

Syntax

[Call, Put] = blsprice(Price, Strike, Rate, Time, Volatility, Yield)

Arguments

`Price`	Current price of the underlying asset.
`Strike`	Exercise price of the option.
`Rate`	Annualized, continuously compounded risk-free rate of return over the life of the option, expressed as a positive decimal number.
`Time`	Time to expiration of the option, expressed in years.
`Volatility`	Annualized asset price volatility (annualized standard deviation of the continuously compounded asset return), expressed as a positive decimal number.
`Yield`	(Optional) Annualized, continuously compounded yield of the underlying asset over the life of the option, expressed as a decimal number. (Default = 0.) For example, for options written on stock indices, `Yield` could represent the dividend yield. For currency options, `Yield` could be the foreign risk-free interest rate.

Description

[Call, Put] = blsprice(Price, Strike, Rate, Time, Volatility, Yield) computes European put and call option prices using a Black-Scholes model.

Any input argument may be a scalar, vector, or matrix. When a value is a scalar, that value is used to price all the options. If more than one input is a vector or matrix, the dimensions of all non-scalar inputs must be identical.

Rate, Time, Volatility, and Yield must be expressed in consistent units of time.

Examples

Consider European stock options that expire in three months with an exercise price of $95. Assume that the underlying stock pays no dividend, trades at $100, and has a volatility of 50% per annum. The risk-free rate is 10% per annum. Using this data

[Call, Put] = blsprice(100, 95, 0.1, 0.25, 0.5)

returns call and put prices of $13.70 and $6.35, respectively.

References

Hull, John C., Options, Futures, and Other Derivatives, Prentice Hall, 5th edition, 2003.