See the Black-Scholes model come to life in just sixty seconds. In this video, we use animated visualisations to showcase the impact of volatility and strike price on the price of a call option. With the underlying stock price on the x-axis and time to option expiry on the y-axis, you'll be able to see how the Black-Scholes model predicts the behaviour of options in real-world scenarios.
Click '>Play' to see how call option valuation varies with underlying price, time to maturity, volatility and strike
In the video above we begin with a stock with a annualised volatility of 20%. We can see the theoretical call option price for a strike of $100 over a range of underlying prices - shown on the x axis - and a range of expiration maturities - shown on our y axis.
For longer maturities and for higher underlying stock prices we have higher option valuations.
We can see the effect of stock volatility. If we increase this to 40% the option prices will increase. We can see the theoretical price for different strikes. If we increase the strike to $120 the valuation drops. Practically to zero for very short dated options.
Naturally decreasing the strike will increase the value of call options.
