Black Scholes Call Premium Function for Microsoft Excel

Microsoft Excel Resource Center
Free Macros, Formulas, Functions, Tutorials, Downloads, Add-Ins & More!

Home

Stock Options

Call Premium

Returns the value of a European call option as determined by the Black-Scholes formula.

Syntax (Values in boldface are required; others are optional)

CallPremium(UnadjustedPrice, StrikePrice, Years, Volatility, RiskfreeRate, DividendYield)

UndajustedPrice: The present price of the underlying security (i.e., the stock price), before adjusting for future dividends.
StrikePrice: Also known as "exercise price", the price at which the underlying security may be bought or sold upon exercise of the option.
Years: The time in years until the option expires. For example, for an option that expires in one month you may enter "1/12" or ".083". For an option that expires in forty-five days, you may enter "45/365".
Volatility: The annualized estimated volatility of the underlying security, expressed as a percentage greater than zero.
RiskfreeRate: The annual risk-free rate of interest which corresponds to a time period roughly equal to the remaining life of the option, expressed in continuous compounding terms. If omitted, zero is assumed.
DividendYield: The annualized dividend yield of the underlying security, expressed in continuous compounding terms. If omitted, zero is assumed.

Example

Notes

American call options generally have the same value as European call options.
A good estimate for the riskfree interest rate is the current yield on US Treasury Bills having approximately the same duration as the remaining life of the option.
To estimate dividend yield, multiply the most recent quarterly dividend by four, then divide it by the stock price.

Code

To install this function, copy the entire contents of the window below into your power4XL code module in Excel's Visual Basic editor.

For detailed instructions, see the "Individual Function Setup" page.

To copy the contents to your clipboard, place your cursor inside the window below, then press "CTRL+C".

NOTE: By copying the code below, you are agreeing to the power4XL license terms. You agree to use the code only on your personal and/or business computer(s) for your own personal use. You agree not to distribute, publish, alter, or edit the code in any way. You may freely refer others to this website if you wish to make the code available to them.

Public Function CallPremium( _ UnadjustedPrice As Double, _ StrikePrice As Double, _ Years, _ Volatility As Double, _ RiskFreeRate, _ Optional DividendYield = 0 _ ) 'Copyright 2006 by power4XL. 'This software is licensed to the individual user who copied it from the power4XL.com website, 'for use only by that individiual on his/her personal and/or business computer. 'The software may not be distributed, published, emailed, posted on another website, edited, 'altered, or used in any other way without the express written permission of power4XL.com. 'The software is provided "as is" with no warranty of suitability for any purpose. 'No warranty is made with respect to the software's ability to provide correct and accurate results. 'The user of this code agrees to hold power4XL and its principals harmless against any 'loss or claim arising from the use of this software. 'The user agrees not to delete these provisions from the code. 'For further information, visit www.power4XL.com. 'Validate the input: If Not IsNumeric(Volatility) Then CallPremium = CVErr(2015) Exit Function ElseIf Not IsNumeric(Years) Then CallPremium = CVErr(2015) Exit Function ElseIf Not IsNumeric(UnadjustedPrice) Then CallPremium = CVErr(2015) Exit Function ElseIf Not IsNumeric(StrikePrice) Then CallPremium = CVErr(2015) Exit Function ElseIf Not IsNumeric(DividendYield) Then CallPremium = CVErr(2015) Exit Function ElseIf Not IsNumeric(RiskFreeRate) Then CallPremium = CVErr(2015) Exit Function ElseIf DividendYield < 0 Then CallPremium = CVErr(2036) Exit Function ElseIf Volatility < 0 Then CallPremium = CVErr(2036) Exit Function ElseIf Years < 0 Then CallPremium = CVErr(2036) Exit Function ElseIf UnadjustedPrice < 0 Then CallPremium = CVErr(2036) Exit Function ElseIf StrikePrice < 0 Then CallPremium = CVErr(2036) Exit Function ElseIf RiskFreeRate < 0 Then CallPremium = CVErr(2036) Exit Function End If 'If there's no time left, the premium is equal to the difference 'between strike price and underlying if in the money, 'and equal to zero if out of the money: If Years = 0 Then CallPremium = Application.WorksheetFunction.Max(0, UnadjustedPrice - StrikePrice) Else 'Do the math: CallPremium = (UnadjustedPrice * Exp(-DividendYield * Years)) * Application.WorksheetFunction.NormSDist((Application.WorksheetFunction.Ln((UnadjustedPrice * Exp(-DividendYield * Years)) / StrikePrice) + (RiskFreeRate + 0.5 * Volatility ^ 2) * Years) / (Volatility * Years ^ 0.5)) - StrikePrice * Exp(-RiskFreeRate * Years) * Application.WorksheetFunction.NormSDist((Application.WorksheetFunction.Ln((UnadjustedPrice * Exp(-DividendYield * Years)) / StrikePrice) + (RiskFreeRate + 0.5 * Volatility ^ 2) * Years) / (Volatility * Years ^ 0.5) - Volatility * Years ^ (0.5)) End If End Function

Copyright notice: This site and all content, including computer code and spreadsheet examples, are copyright 2006 by Fritz Dooley. License is granted for individual users to download examples and to copy code directly into user's spreadsheets and Visual Basic for Applications files. Users may not redistribute code in any way. Providing hyperlinks to this web site is encouraged, but posting code and examples on other web sites is expressly forbidden. "Microsoft" is a registered trademark of Microsoft Corporation. Neither this web site nor Fritz Dooley is affiliated with Microsoft Corporation.