2723 Valuation European options can be valued using Black,s model This assumes that conditional on no default spread or Frn price is lognormal Need a volatility for forward credit spread or forward Frn price Must multiply black's formula by risk-neutral probability of no default Options, Futures, and other Derivatives, 5th edition 2002 by John C. HullOptions, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 27.23 Valuation • European options can be valued using Black’s model • This assumes that, conditional on no default, spread or FRN price is lognormal • Need a volatility for forward credit spread or forward FRN price • Must multiply Black’s formula by risk-neutral probability of no default