How to value a PUT Option with Python
A put option is a type of financial contract that gives the holder the right, but not the obligation, to sell an underlying asset at a specified price (known as the strike price) within a specified period of time.
Put options are typically used as a form of hedging or as a way to speculate on a decline in the price of the underlying asset. For example, if an investor believes that the price of a particular stock will fall in the future, they may purchase a put option on that stock with a strike price that is above the current market price. If the stock does indeed fall in price, the investor can exercise the put option and sell the stock at the higher strike price, locking in a profit.
However, if the stock price does not fall or even rises, the investor may choose not to exercise the option and will lose the premium paid for the option. It’s important to note that purchasing put options involves risks and may not be suitable for all investors.
The Black-Scholes model
Let´s see an example of how to value a put option using the Black-Scholes model:
Let’s assume we want to value a put option on a stock that is currently trading at $100 per share. The option has a strike price of $95 and expires in 6 months. The risk-free interest rate is 2%, and the stock’s…
