• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Ch15 Q15.2 - Φ(d1) and Φ(d2)

S

Sandor Kelemen

Member
Hello there,

Is it fair to expect the interpretation of Φ(d1) and Φ(d2) on this level of the study material? Searching at Wikipedia I have found some helpful material:

https://en.wikipedia.org/wiki/Black–Scholes_model#Black–Scholes_formula

section "Interpretation".

I was able to prove these "asset-or-nothing"/"cash-or-nothing" interpretations but just with the toolkit of the 16-17th 5-step method chapter. In the question solution the reasoning is as simple as "But the manager will not need to pay the £8.59 so the second term is not required".

Can you give me an interpretation how to see this that clearly just from the arguments presented in the material (note that in the chapter 15 the Black-Scholes explicit formulae are just given from nowhere, so it is hard to interpret immediately all terms involved)?

Thanks in advance,
Good luck with your exams :).
 
Back
Top