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  1. #1

    Default Options software

    I am not very experienced with options. I have never seen option software other than something I programmed into my HP calculator to get greeks. So this question maybe very basic (excuse my ignorance).

    I am wondering whether you can get a program that allow you to fiddle with the distribution. Can you get a black-scholes type elaboration of the greeks with an implied non normal distribution ?? Because what is the point of having an option pricing system that assumes normality when particular markets are obviously not distributed like this ?? Also is any of this software available for free ?

  2. #2

    Default Re: options software

    Hmmm ... the short answer to your question is no !!!

    BSOPM assumes a normal distribution (standard deviation of 1 ... i.e. approx 68.26% of the population variance from a sample of N observations) and in BSOPM formula {Excel: C=SN(d1)-Xe(-rT)N(d2) where d1=LN(S/X)+(r+v2/2)T/v(sqrt)T and d2=d1-v(sqrt)T} is expressed as the input "v" as "implied volatility".

    I suspect you are referring to 'skew' and/or 'kurtosis' ... i.e. fat tails. Kurtosis is when more or less than (100-68.26) 31.74% of the population variance falls outside of the distribution (+/-).

    We need to look at the bigger picture ... the only reason that Black & Scholes included 'volatility' in their formula was to provide some 'reward for the risk' incurred by the WRITER relating to the 'probability' of the STOCK PRICE reaching the STRIKE PRICE ... thereby triggering EXERCISE of the Option at EXPIRY.

    This becomes largely 'academic' in my view as Black & Scholes in noting variances in the Market prices of Options relative to their formula opted for a 'variable' volatility INPUT derived (i.e. backended) from the actual Option Price ... known as IMPLIED VOLATILITY.

    This of course can bear no relationship to anything other than the price the Market puts on the Option ... any variance (e.g. normal distribution) becomes largely academic. In other words, the Market determines the price of the Option.

    Cheers ...

  3. #3

    Default Re: options software


    Should keep you amused for weeks.

  4. #4
    DTM's Avatar
    Join Date
    Dec 2004
    Newington, Sydney

    Thumbs up Re: options software

    Thanks Tech

    I use option gear and Advanced get but have no idea how volatility is measured and a lot of the other things thats in there. This site should help me understand what's what.


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