BS formula using Norm vol
Posted: February 23rd, 2005, 9:02 pm
by rickynu
anyone have the formula for option price which uses normal vol as an input?
BS formula using Norm vol
Posted: February 23rd, 2005, 10:19 pm
by DavidJN
Here's some old stuff for options on a spread, where the spread is assumed to be normally distributed.H = 1.0 / (V * sqrt(T)) * (F - K);Call: result = exp(-R * T) * ( (F - K) * CNorm(H) + V * sqrt(T) * CNorm(H) );Put: result = exp(-R * T) * ((K - F) * (1.0 - CNorm(H)) + V * sqrt(T) * CNorm(H) );where F = forward spread K = strike spread R = riskless rate (decimal, continuous) T = time to maturity (years) V = annual volatility in decimal form and CNorm is the "usual" cumulative normal operatorDon't have the time to think about whether this is a general formula, but it's a start for you.
BS formula using Norm vol
Posted: February 24th, 2005, 12:22 pm
by rickynu
many thanks!