Payoff Option Formula In Bexar
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FAQ
The payoff function is a function u i : S 1 × S 2 × ⋯ S m → R .
By the symmetry of the standard normal distribution N(−d) = (1−N(d)) so the formula for the put option is usually written as p(0) = e−rT KN(−d2) − S(0)N(−d1). Rewrite the Black-Scholes formula as c(0) = e−rT (S(0)erT N(d1) − KN(d2)).
A put payoff diagram explains the profit/loss from the put option on expiration and the breakeven point of the transaction. It's a pictorial representation of the possible results of your action (of buying a Put).
The expected payoff is the average of the payoffs, weighted by the probabilities of each payoff, i.e., 0.4 200 + 0.6 500 = 380.
