Is there any additional information available about the derivative price inputs to the Black-Scholes functions in the Financial Toolbox?

I am looking for more information about the derivative price inputs to the Black-Scholes functions in the Financial Toolbox. In particular, I would like to know if the derivative price input parameters are yield or discrete. If they are yield, is the yield annualized or is it simply dividend divided by stock price.

Answer 1

[MathWorks Support Team]

The "Q" parameter for the Black-Scholes functions in the Financial Toolbox is the annual dividend rate expressed as a percentage of the price of the security. The equations we use are the Black-Scholes equations from "Options, Futures, & Other Derivatives" by Hull -- you can verify this by opening and viewing the function by entering the command:

edit blsprice

Consider the following example that explains the dividend parameter:

The S&P 100 index currently stands at 696 and has a volatility of 30% per annum. The risk-free rate of interest is 7% per annum and the index provides a dividend yield of 4% per annum. Calculate the value of a three-month European put with strike price 700.

This problem can be solved using the following call to the BLSPRICE function:

[Call, Put] = blsprice(696, 700, .07, .25, .3, .04)

which produces the result:

 Call =

    41.7720

 Put =

    40.5539