BlackScholes

ERI's Black-Scholes Calculator

Input Data
US $ Example: "25.00"  
US $ Example: "15.00"  
Years Example: "3.5"  
Annual % Example: ".05" (for 5%)  
Annual % Example: ".20" (for 20%)  
Clear Fields
Options (Fair Value)
US $
US $

Equation

This online calculator uses the Black-Scholes equation for the fair value of a European call option* on a non-dividend paying stock, as follows:

Black Scholes formula

A European call option can only be exercised on its expiration date. This is in contrast to American options that can be exercised at any time prior to expiration.

A European option is used in order to reduce the variables in the equation. This is acceptable, since most U.S. company stock options are not exercised until their expiration (vesting) date. Why? When an employee exercises a call early, he or she forfeits the remaining time value on the call and collects only the intrinsic value.

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Disclaimer: This Black-Scholes Calculator is not intended as a basis for trading decisions. No responsibility whatsoever is assumed for its correctness or suitability for any given purpose. Use at your own risk.

Provided by ERI Economic Research Institute – Your research outsource for salary survey, cost-of-living
and executive compensation survey data.

To learn more about how to use the Black-Scholes method to place a value on stock options, please see the ERI Distance Learning Center online course Black-Scholes Valuations.

Relevant Black Scholes Definitions (all values are per share)
Black Scholes The Black Scholes Option Pricing Model determines the fair market value of European options but may also be used to value American options*. The actual formula can be viewed here.
Stock Asset Price A stock's current price, publicly traded or estimated.
Option Strike Price Predetermined price (by the option writer) at which an option's stock is purchased or sold.
Maturity (Time Until Expiration) * Time remaining to the option expiration date.
Risk-Free Interest Rate Current interest rate of short-dated government bonds such as US Treasury bills.
Volatility Degree of unpredictable change over time of an option's stock price often expressed as the standard deviation of the stock price.
European Call * $US fair market value of an option exercised at expiration. A call option gives the buyer (the option holder) the right to purchase stocks from the seller (the option writer) at the strike price.
European Put * $US fair market value of an option exercised at expiration. A put option gives the buyer (the option holder) the right to sell the purchased stocks to the writer of the option at the strike price.
* A European option can only be exercised on the expiration date. An American option may be exercised at any time during the life of the option. However, in most cases, it is acceptable to value an American option using the Black Scholes Model because American options are rarely exercised before the expiration date.
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