The Black-Scholes formulas for the prices of European calls and puts with strike price X on a non-dividend paying stock are the roots of the differential.
- N(x) is the cumulative distribution function for a standardized normal distribution.
- The expression (N d2) is the probability that the option will be exercised in a risk neutral world, so that (N d2) is the strike price times the probability that the strike price will be paid.
- Sigma annual = sigma daily x Number of trading days per year. On an average there are 250 trading days in a year.
