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

Shackleton, Mark and Wojakowski, Rafał (2001) On the expected payoff and true probability of exercise of European options. Applied Economics Letters, 8 (4). pp. 269-271. ISSN 1350-4851

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, script N(d 4), lies halfway between the two more familiar terms: script N(d 1) and script N(d2).