Approximating Probabilities of Standard Normal Distribution

Discussion in 'CM2' started by George Philip, Feb 26, 2022.

  1. George Philip

    George Philip Active Member

    While going through Chapter 15 "The Black-Scholes option pricing Formula", I was confused as to how to approximate for taking probabilities of Standard Normal Distribution.

    For example
    Can we approximate ɸ(0.974) to ɸ(0.97) and take the value as 0.83398 ?

    Or do we have to find the value of ɸ(0.974) by interpolating values of ɸ(0.97) and ɸ(0.98)?

    Thanks in advance.
     
  2. Steve Hales

    Steve Hales ActEd Tutor Staff Member

    Historically, the interpolation method was required to obtain the necessary level of precision.
    However, now that Excel can be used to calculate the figures there's no longer any need to use the Tables for this task.
    Specifically, \(\Phi(0.974)\) = NORM.S.DIST(0.974,TRUE)
     
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