Bhuvnesh (CA Final) (75 Points)
01 May 2012Dear Friends Please Me to Get Out from this problem.
I did not understand how to calculate these values specially when Normal Distribution table is given in Exam.
For referance you can go to Nov. 2006 4(a) Question.
Please Reply as soon as possible. Possibally this question can again be asked in May 2012 Exam so reply fast.
Shubhankar Limaye
(B.Com.)
(174 Points)
Replied 02 May 2012
for calculating d1 you need to use the formula
[ln(Spot/Strike)+((r+variance/2)*time)]/std.dev*sqr root of time
Normally the ln() values will be given as a part of question. So normally you need not worry about it.
The standard normal distribution table gives cumulative probabilities i.e. if the value of d1 is .3 then the table gives the probability of observing values less than and upto .3.
The rules for using standard norm dist table are as under:
prob(positive d1) - read off the value from table. use linear interpolation for values lower than .001
prob(negative d1) - convert it into 1 - prob(positive d1) and use above rule.
Same applies for d2
CAclubindia
