Hi,I am implementing a simple Normal Model for Swaption Pricing.I first try to price European Puts and European Calls as follows:BNCalls = normvol * sqrt(T) * (d1 * N(d1) + N'(d1))BNPuts = normvol * sqrt(T) * (d2 * N(d2) + N'(d2))where:d1 = +(F - K) / (normvol * sqrt(T))d2 = - (F - K) / (normvol * sqrt(T))F is the forward, K is the strike, T is the time to maturity.Following is a VBA code I use for the same. My problem is that I get negative values for BNPut whenever I have F > K(and similarly, negative values for BNCall whenever I have F < K). I am not able to understand what mistake I am making. Would be great if someone could advice. Thanks. Public Function Bnormcall(forward As Double, k As Double, sigma As Double, T As Double) As Double d1 = (forward - k) / (sigma * (T ^ 0.5)) Nd1 = WorksheetFunction.NormSDist(d1) Ndprimed1 = 1 / ((2 * WorksheetFunction.Pi) ^ 0.5) * Exp(-(d1 ^ 2) / 2) Bnormcall = sigma * (T ^ 0.5) * ((d1 * Nd1) + Nprimed1)End FunctionPublic Function Bnormput(forward As Double, k As Double, sigma As Double, T As Double) As Double d2 = -(forward - k) / sigma / T ^ 0.5 Nd2 = WorksheetFunction.NormSDist(d2) Ndprimed2 = 1 / ((2 * WorksheetFunction.Pi) ^ 0.5) * Exp(-(d2 ^ 2) / 2) Bnormput = sigma * T ^ 0.5 * (d2 * Nd2 + Nprimed2) End Function

check your formulas. Its becouse of your d1 and d2. From the eq for d1, its clear that it is -ve for F>K. similarly for d2. I think there is some problem in the euqation. where did you find this.

Hi Sanjay,I am using my lecture notes. Please see page 8 of the attached for the Normal model.Any hints would be appreciated!Thanks,Tarun

tarunmakhija, i think its a draw back of the model.

QuotePublic Function Bnormcall(forward As Double, k As Double, sigma As Double, T As Double) As Double d1 = (forward - k) / (sigma * (T ^ 0.5)) Nd1 = WorksheetFunction.NormSDist(d1) Ndprimed1 = 1 / ((2 * WorksheetFunction.Pi) ^ 0.5) * Exp(-(d1 ^ 2) / 2) Bnormcall = sigma * (T ^ 0.5) * ((d1 * Nd1) + Nprimed1)End FunctionThe formula on the paper is correct. Your implementation contains an error though: in the last line you want to write : Bnormcall = sigma * (T ^ 0.5) * ((d1 * Nd1) + Ndprimed1)instead of Bnormcall = sigma * (T ^ 0.5) * ((d1 * Nd1) + Nprimed1)Also, once you move from the evaluation of a single option to a swaption, don't forget the annuity term (L in your article) P.S. A modest (but really important) programming suggestion: always start your code with "Option Explicit". If you had done, not only you would have spotted this error immediately, but the compiler would have spotted it for you

sorry for the misleading.I didnt see that.

Thanks a lot gc! that was really stupid of me.I will start using Option Explicit (This is my first time with VBA.. I am a Java programmer)Best,Tarun