This is a tool that calculates the call and put prices of up to 5 American (style) options, using the Barone-Adesi and Whaley approximation. It also supports the entering of up to 5 risk parameters for each option, to enable the risk to be calculated when parameters change by defined amounts.

Initially the tool displays a single option view. To switch to a tabular, multiple option view, choose the required number of option columns from the Select View drop down box. In the multiple option view, different option calculations can be performed in parallel, allowing easy comparison of results. To reduce data entry time, it is possible to copy the option details from one column to the next, by using the Copy button at the top of the column. For further flexibility, any option in the multiple view can be displayed on its own in the single option view by selecting the appropriate choice in the Select View drop down.

For each option price calculation, it is necessary to supply the following information:

• The stock price.
• The strike price, or exercise price, which is the price at which the underlying stock can be purchased or sold upon exercise of the option.
• The term in years of the option contract.
• The annualised, continuously compounded, risk-free interest rate. This is usually expressed in percentage terms (unless the formatting is explicitly set to express it as a decimal).
• The annualised, continuously compounded, dividend yield. This is usually expressed in percentage terms (unless the formatting is explicitly set to express it as a decimal).
• The volatility. This is usually expressed in percentage terms (unless the formatting is explicitly set to express it as a decimal).

To specify risk parameters for one or more options, click on the Show Risk Parameters toggle button. This displays a risk table for each option currently in view, with each table showing 3 risk rows initially. To change the number of risk rows displayed, choose the required number from the Select Risk View drop down box. It is also possible to display only one risk at a time (for each option) by selecting the appropriate single risk row view choice from the drop down.

For each option risk calculation, it is necessary to supply the following information:

• The risk parameter, which is one of the option pricing inputs, i.e. stock price, strike price, term, interest rate, dividend yield or volatility.
• The size of the blip, or change, in the parameter value.
• The blip type, which indicates whether the blip is expressed in absolute or relative terms. If the blip is relative then its size is specified in percentage terms. If it is absolute then its size is only given in percentage terms if the associated risk parameter is also expressed as a percentage.

The results of each option risk calculation are displayed in the same row as the entered information. The results indicate the call and put risks, which are the risks determined by subtracting the original call or put price from that generated by re-running the calculation with the blipped (changed) parameter.

Associated tool link: http://www.coggit.com/tools/american_option_pricing.html