I'm trying to create a function to calculate option price under Black-Scholes model. But it keeps saying that there is a mistake on d1; I double check it, but I can't find a mistake in there. Perhaps there is other thing I'm missing?

function [c,p]=european_formula(id, K, T, S, sigma, q, r)
  i=id;
  X=K;
  t=T;
  S0=S;
  v=sigma;
  divd=q;
  R=r;
  d1=(log(So/X)+(R-d+0.5*v^2)*t)/(v*sqrt(t));
  d2=d1-v*sqrt(t); 

    if i==1
        c=So*exp(-divd*t)*cdf(d1)-x*exp(-r*t)*cdf(d2);
    else 
        p=-S0*exp(-divd*t)*cdf(-d1)+x*exp(-r*t)*cdf(-d2); 

    end

Answer 1

[Darshan Ramakant Bhat]

In the line

d1=(log(So/X)+(R-d+0.5*v^2)*t)/(v*sqrt(t));

What is 'So' ?, it seems to be undefined. I think it should be 'S0'. Similarly in the line

c=So*exp(-divd*t)*cdf(d1)-x*exp(-r*t)*cdf(d2);

'So' is appearing again. I think this is the error you are getting.

Regards

Darshan Bhat