Black Scholes-N(d1)

CFA Level II
#1

Can someone explain that after calculating d1 and d2 from formulas how do we calculate N(d1) and N(d2)? Will N(d1) and N(d2) be given on the exam? Thanks.

#2

I don’t think we need to know how to calculate the components of BSM for the exam

#3

I didn’t know that? What do we need to know about BSM?

#4

I skip that one

#5

ksn Wrote: ------------------------------------------------------- > I didn’t know that? What do we need to know about > BSM? The assumptions and the 5 inputs you need for the model along with their effect on option value Volatility Strike Price Rf current price time to expiration

#6

Nd1 and Nd2 are just deltas for calls and put respectively. AKA, change in the price of call/put over changes in price of underlying. you need to know how to calculate them because there are questions asking you about dynamic hedging for your current stock/option position. dynamic hedging = big part in derivatives too…

#7

N(d1) and N(d2) are standard normal probabilities. See appendix in volume 1.

#8

I dunno about Nd2, but I know this: delta for a call = Nd1 delta for a put = Nd1 - 1 to have a perfectly hedged portfolio, for every unit of stock you own, you must sell: 1/(Nd1) call options 1/(Nd - 1) put options