The Normal Distribution Tables and Black Scholes Model (1973)
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Reading N(d1) and N(d2) from tables.
In this video, I’ll demonstrate how to use normal distribution tables to estimate N(d1) and N(d2) for the Black-Scholes option pricing model. We'll walk through each step carefully, focusing on how to look up values from the normal distribution tables and apply them to the Black-Scholes formula. This method is useful when you don't have access to built-in functions like NORM.S.DIST in Excel for invigilated exams.
To help, I’ve also attached an Excel spreadsheet that includes:
A full breakdown of the Black-Scholes formula, showing how to calculate d1 and d2.
Manual calculations using normal distribution tables, so you can follow along without needing advanced software/class exam.
A sheet dedicated to negative values of d1 and d2, showing how to adjust for them when using the tables.
Exponential functions required for the Black-Scholes formula, along with their step-by-step calculations.
Links to additional resources and video tutorials explaining the background and application of Black-Scholes.
This spreadsheet will be particularly useful if you want to see how the theory works with practical examples, or if you're preparing for an exam or project that requires a deeper understanding of the Black-Scholes model.
Download the spreadsheet, and follow along to master this critical aspect of option pricing.