Compound Option (Call-on-Call, Geske)
Computes the price of a compound call-on-call option with the Geske (1979) model: a call option whose underlying is, itself, another call option. It's the structure behind many real-world contracts — an option to extend a project, for example, is an option on an option. The calculation requires finding the critical price at which exercising the first option is worthwhile and uses the bivariate normal. Enter the spot price, the two strikes, the two expiries, the rate and the volatility.
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Compound Option (Call-on-Call, Geske)
Computes the price of a compound call-on-call option with the Geske (1979) model: a call option whose underlying is, itself, another call option. It's the structure behind many real-world contracts — an option to extend a project, for example, is an option on an option. The calculation requires finding the critical price at which exercising the first option is worthwhile and uses the bivariate normal. Enter the spot price, the two strikes, the two expiries, the rate and the volatility.
An option on another option
It sounds like an abstract exercise, but options on options are everywhere in real life. The right to extend a project, to exercise a second investment round, to defer a decision by paying a cost: all are options whose underlying is, in turn, another option. Robert Geske gave this structure a closed form in 1979.
The calculation is subtler than a plain option's because it involves two decision dates. First, you have to find the critical asset price at which exercising the first option pays off; then combine the probabilities of the two events using the bivariate normal distribution, which measures the joint chance of the price being above two thresholds at once. That's why the formula needs a heavier numerical tool.
Enter the spot price, the strikes of the compound and underlying options, the two expiries, the interest rate and the volatility. The tool finds the critical price and returns the call-on-call premium. Compound options are the theoretical basis of so-called real options analysis, which values managerial flexibility in projects.
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Black-76 Call Price (Options on Futures)
Works out the premium of a European call option on futures with the Black-76 model, the variant of Black-Scholes used when the underlying is a futures or forward contract. The price is e^(−rT)·[F·N(d1) − K·N(d2)], with d1 and d2 built from the futures price, the strike, the volatility and the term. Because the future already embeds the cost of carry, the discount hits both terms and the interest rate never shows up inside d1. It is the standard for options on commodities, indices and rates. Enter the futures price, the strike, the risk-free rate, the term in years and the annual volatility.
Down-and-In Barrier Call
Computes the price of a down-and-in barrier call: an option that only comes into existence if the asset touches a barrier below the current price before expiry. It's the counterpart of the down-and-out, and the sum of the two is exactly a plain call: either the barrier is touched (activating the in) or it isn't (keeping the out). Because it depends on a trigger, it costs less than a plain call. Enter the spot price, the strike, the barrier, the rate, the term and the volatility.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.