Hi All,

I am trying to cross check option implied employee option price that was derived using Monte Carlo simulation. Below is code and parameter used and after accounting for dividend yield ( 1.46%) the derived option price is 206.8843 using the code snippet provided. Approx 1 cent below 207.95 that is listed in company prospect using their Monte Carlo simulation and below parameters.

As we all know number of iteration can also slightly impact the average price, but am I rightly concerned that my methodology may not be correct?

Any feedback will be appreciated.


exercisePrice   = 0;
timeToExpiry    = 3;        #% in years
underlyingPrice = 490;      #% underlying in cents
expectedVol     = 0.5;      #% expected volatility
expectedDiv     = 0.0146;        #% expected dividend in cents
riskFreeRate    = 0.0425;   #% interest rate
itr = 500000              #% number of iterations
delS = 0*array(0,itr)

for( i in (1:itr))
{
    eps = rnorm(1)         #% random number generator
    dS = expectedDiv*underlyingPrice+underlyingPrice*(riskFreeRate*timeToExpiry) + (underlyingPrice*expectedVol*eps*sqrt(timeToExpiry))
    mv = dS - exercisePrice;

    delS[i] = max(mv,0);
}

mean(delS)

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