The probability of a regular put option closing in-the-money is, with our usual notation: choose one) A) Nd₁) B) Nd₂) C) N−d₁) D) N−d₂)

Question

Quizplus · Accepted Answer

The correct choice is D, which represents the probability of a regular put option closing in-the-money using the Black-Scholes model notation. This is given by $N(-d_2)$, where $N$ is the cumulative distribution function of the standard normal distribution, and $d_2$ is a specific value calculated as part of the Black-Scholes formula. This reflects the probability that the option's strike price will be above the underlying asset's price at expiration, leading to a scenario where exercising the put option (selling the asset at the strike price) is profitable.

The Probability of a Regular Put Option Closing In-The-Money Is