On the expected payoff and true probability of exercise of European options

Mark Shackleton and Rafal Wojakowski

Applied Economics Letters, 2001, vol. 8, issue 4, 269-271

Abstract: The continuous-time formula for expected payoff to holding an option, which nests several major pricing tools, is derived. It is shown also that under current market conditions the true exercise probability, N (d4), lies halfway between the two more familiar terms: N (d1) and N (d2).

Date: 2001
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DOI: 10.1080/135048501750104079

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