The cash-or-nothing digital option give a fixed payout of M when the underlying S ends up above (call) or below (put) the strike K.
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C
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Price of the digital cash-or-nothing call option
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P
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Price of the digital cash-or-nothing put option
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M
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Payout cash amount
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S
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Present value of the underlying asset
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Y
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Yield of the underlying asset. Y=r for stock, Y=0 for futures
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Volatility of the underlying asset
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r
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Continuous compounded interest rate
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T
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Time till expiration
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K
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Strike (excercise) price
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Cumulative normal distribution
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Natural logarithm (base e) |
 cash-or-nothing option pricing.png "Digital (binary) cash-or-nothing option pricing equation")
 cash-or-nothing option pricing.gif){kind=link}