Option Pricing : Very Simple Formulas

We provide very simple formulas for pricing both the European and American options.The existing methods of option pricing adopt strong assumptions. Furthermore, they use advanced mathematics to produce controversial pricing methods. The use of mathematically advanced models does not necessarily produce better results than using simple formulas. To the contrary, the mathematically advanced models require simplifying assumptions that yield controversial results (for a discussion, see, for example, Cvitanic and Zapatero (1994) and Alghalith (2012)).In response to these limitations, this note provides simple methods of pricing both the European and American options. In so doing, we utilize the relationship between the volatility, time, upper bound, and the option price