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Please note that this description and the accompanying spreadsheet are instructional tools, to be used for educational purposes only. |
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In additional to using the numerical Monte Carlo pricing technique for path dependent, American, plain vanilla and other more exotic type of options, a European style option can also be priced by using the Black-Scholes pricing framework. As the screen shows, to price the latter option, one can see all the required parameters to price the option and the cells from C4 to C12 can be used to input the required parameters. The result output for both the call and the put for the same underling can be observed from cell 17 and 18. As an exercise change the input parameters and see the impact of the option premium with respect to these changes. In fact, one can use this pricing technique to price similar option that is also attached to other assets such as capital guaranteed products. For detailed discussion on this see the article by Abukar M Ali, "Equity Linked Notes: and Introduction to Principal Guaranteed Structures", Journal of Bond Trading & Management, Volume 1, Number 3, January 2003. |
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