Wondering about Black Scholes Call PnL
Posted: April 2nd, 2007, 8:55 pm
Hello everybody,pricing European options with Black's model works fine when I do so in a spreadsheet. I get reasonable PnLs for the options when applied to monthly data (monthly prices in a 10 year timeseries). Now, if I try to price in-the-money call options on a stock with the regular Black Scholes model why do I never get a profit and only losses ? For in-the-money put options, I get profits and losses as expected, though. I am using dividend and split adjusted closing prices for the underlying stock and historical volatility, and calculate the profits by option payoff minus option price.If it leads to o.k. results for the put, the reason should not be the constant volatility assumption, I guess.Is it because I am ignoring splits and dividends with the regular B-S formula? Or, is it always the case that the regular Black Scholes model doesn't lead to reasonable PnL results or am I overlooking something important?Thanks in advance for any help!Cheers