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The OPTION CALCULATOR
Welcome to the Option Calculator Module. This module performs two main tasks. First, it automates the problem of having to input data. The Option Calculator Module automates the data retrieval problem for you. Second, it lets you apply powerful analytics to analyse the latest price and other information.
For example, with this module you can do the following:
i. value different option contracts including options on stocks, options on indexes, and currency options
ii. compute the current implied volatility for different option contracts
iii. compute the hedge parameters (delta, gamma, vega, and theta) for different option contracts
iv. check out how all of the above respond to changes in the key drivers of option prices (i.e. conduct sensitivity analysis)
v. check out the likelihood of gains/losses from an option contract including assessing the probability of future gains and losses
vi. Link to Excel and solve for multiple option pricing problems at the click of a mouse.
How Do I Get Started?
The following three steps lets you get started.
Step 1: Using default data. For the default data click on Calculate --- you will see that the price of the European call with strike price equal to 50, and underlying asset price = 50, is 7.4879. Similarly, the option "Greeks" are provided for Delta, Gamma, Vega and Theta.
In addition, suppose you had multiple option pricing problems using this default data you can do this via spreadsheet link. For example click on OpSpShLink.xls, save locally and open in Excel. This template contains all combinations of the default data (Put/Call/European/American) and this is solved at the click of a mouse. To do so select Menu item Calculators, Spreadsheet Link, Find Excel Sheet and link to Sheet 1 in OpSpShLink.xls and then click on Process. Give the focus to the spreadsheet and you will see that for the input data highlighted in color (yellow background) the calculator has computed the output. You can do this for 500 options if you want to!
Step 2: If you need a refresher on option contracts and terminology, click on what is an option?
Step 3: Fast Start to immediately putting the Option Calculator to practical use. Work through this lesson by clicking on the hypertext.
Step 4: Work through how do I use this module by clicking on the hypertext.
Step 5: You can work through the generic lessons that illustrate how to use option calculator to solve a set of real world option pricing problems.
Step 6: Finer points about using the Option Calculator.
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