Question

What factors may contribute to the difference between the listed premium and the calculated premiums? (i.e. What are all the factors that cause the"last price" for a call option on Yahoo! Finance to be different from the call premium calculated using the Black Scholes Model formula)

Answer 1

Difference might be due to:

1. Different models being used by different participants: Each person might have their own model, whihc might be different from Black Scholes Model. Also, theoretical models other than Black Scholes exist too. Hence, listed premium might be different from the calculated premium.

2. Differences in model parameters: Future expectation of economy-stock prices, interest rates, dividend yield, volatility. Different participants having different model paramters might arrive at different values. Hence, this might be contributing to listed premium being different from the calculated premium.

3. Need or Desperation of buyer & seller: Everyone might be having different purposes to buy/sell. Some might buy for short term hedge, some for long term hedge, some for speculation, some for arbitrage and hence they would be willing to trade at different prices even though they all might arrive at the same theoretical price. This also might be factor due to which listed premium would be different from calculated premium.