I am confused on why suddenly Black's formula comes into picture, and why S_T^2 can be write in as that.

Would you please explain or point to some reference related?

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I am confused on why suddenly Black's formula comes into picture, and why S_T^2 can be write in as that.

Would you please explain or point to some reference related?

Would you please explain or point to some reference related?

- sin.tutyou
**Posts:**2**Joined:**Fri Jul 13, 2012 2:58 pm

the Black formula always applies when you have a call option on a lognormal quantity.

A square of a log-normal is also log-normal. So all we have to do is rewrite it as its mean

times a log-normal with mean 1 in order to fit it into the Black formula.

A square of a log-normal is also log-normal. So all we have to do is rewrite it as its mean

times a log-normal with mean 1 in order to fit it into the Black formula.

- mj
- Site Admin
**Posts:**1335**Joined:**Fri Jul 27, 2007 7:21 am

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