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Basic Question 2 of 12

In the BSM model for a put option, d1 is calculated as 0.49 and d2 is -0.23. If you want to replicate the put option payoffs with stocks and zero-coupon bonds, you should long ______ bonds and short ______ stocks.
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User Contributed Comments 2

User Comment
ruwanma HI It seems the calcuation of 1-N(d2) is not correct ?
it should be 1- N( -0.23)= 1-0.5910 = 0.4090
RAMOST Hi Ruwanma, they are using the normal cumulative distribution
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Martin Rockenfeldt

Martin Rockenfeldt

Learning Outcome Statements

identify assumptions of the Black-Scholes-Merton option valuation model;

interpret the components of the Black-Scholes-Merton model as applied to call options in terms of a leveraged position in the underlying;

describe how the Black-Scholes-Merton model is used to value European options on equities and currencies;

CFA® 2025 Level II Curriculum, Volume 5, Module 32.