Basic Option Pricing Models

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In this section, you will find Black-Scholes models for valuing short term options, long term options and options that result in dilution of stock (such as warrants). In addition, you will find spreadsheets that convert Black-Scholes inputs into Binomial model inputs and use the binomial model to value options. Spreadsheets included: • bstobin.xls - This spreadsheet converts the standard deviation input in the Black-Scholes model to up and down movements in the binomial tree. • optst.xls - This is a dividend-adjusted model for valuing short-term options. It considers the present value of expected dividends during the option life. • optlt.xls - This is a dividend-adjusted model for valuing long term options. It considers the expected dividend yield on the underlying asset. • warrant.xls - This is a model for valuing options that result in dilution of the underlying stock. Consequently, it is useful in valuing warrants and management options.
Source: Damodaran Online
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Subjects: Finance, Spreadsheets
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