To estimate the premium of a call option, one can use the Black & Scholes model, shown here:

(1)
\begin{align} c_0 = S_0N(d_1)-PV(K)N(d_1-\sigma \sqrt{T}) \end{align}

where

(2)
\begin{align} d = \frac{ln(\frac{S_0}{PV(K)})}{\sigma\sqrt{T}}+ \frac{\sigma\sqrt{T}}{2} \end{align}
 c call premium S stock underlying option K Exercise price T Time until call expires $\sigma$ underlying asset's standard deviation PV present value

The first step in estimating the call premium is to calculate the value for $d.$ After you have this value you may use a spreadsheet such as Excel to find $N(d)$ or you may look up the value for $N(d)$ in a statistical table. $N(d)$ is the cumulative normal distribution from negative infinity to $d.$ You can find $N(d)$ as the NORMSDIST function in Excel, or read it from Cumulative Normal Distribution tables, as listed in Table A.5 on page 864 of the Grinblatt text.
If you have the calculated value for $d$ in an Excel table, for example in cell A!, simply enter the function =NORMSDIST(A1) in any other spreadsheet cell to produce [[\$N(d)]] in your target cell.

page revision: 12, last edited: 11 Feb 2009 21:48