Stochastic Models and Processes · 18. février 2023

The d₁ term in the Black-Scholes model captures key factors of option pricing like stock price, strike price, volatility, and time. N(d₁) represents the option's delta, showing how sensitive its price is to the stock price. While often mistaken for the probability of the option ending in the money, this is actually the role of N(d₂). N(d₁) primarily reflects the option's sensitivity and hedge ratio.