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What is the meaning of N(d1) in the Black-Scholes-Merton option pricing formulas? Hint: read section 13.7...

What is the meaning of N(d1) in the Black-Scholes-Merton option pricing formulas?

Hint: read section 13.7 of the Hull book.

a) The probability that the underlying stock price is below d1.

b) The probability that the underlying stock price is above d1.

c) The probability that a standard normally distributed random variable has a realized value above d1.

d) The probability that a standard normally distributed random variable has a realized value below d1.

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Answer: D. The probability that a standard normally distributed random variable has a realized value below d1.

N(D1) = 1- Tail area of standard normal distribution curve.

Suppose if D1= 0.75

Then N(D1) = 0.7736 as shown in the diagram.

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