Valuing put options
In this lesson, you'll learn how to value put options using the Black-Scholes option pricing model—a key technique for Advanced Financial Management (AFM). You'll discover why calculating a call option value first is essential, then how to apply the put-call parity relationship to determine the put option price.
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In this lesson
- 0:00 Valuing put options with Black-Scholes
- 0:34 Put option valuation illustrated
- 1:46 Using put-call parity formula
- 2:29 Exam tips for put option calculations
About this lesson
Through a worked example involving Lima Limited shares, you'll see the methodology step-by-step and understand when to use the Black-Scholes calculator in the exam to minimise calculation errors. This video builds on option pricing fundamentals and is directly relevant to AFM assessments where you need to value derivatives accurately under time pressure. The put-call parity formula connects call and put values, allowing you to work backwards from a known call price to find the put option value. By following the structured approach shown here—identifying your inputs, calculating the call option first, then applying parity—you'll develop confidence in handling these calculations in both practice questions and the exam itself. The key takeaway: always use the Black-Scholes calculator spreadsheet in your exam rather than manual calculation. This reduces errors, saves time, and lets you focus on interpreting results rather than wrestling with order of operations. Mastering this technique ensures you can confidently value both call and put options under realistic exam conditions.
Duration: 3m
Transcript
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