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UW DUCupei tau. equipment and CLISSOLD INDUSTRIES OPTIONS You are currently working for Clissold Industries. The company, which went puoi dustries. The company, which went public five years ago, engages in the design, production, and distribution of lighting equipment specialty products worldwide. Because of recent events. Mal Clissold, the company prest dent, is concerned about the company's risk, so he asks for your input your discussion with Mal, you explain that the CAPM proposes that the market terminant of its...
1. The share price of ACC is ₹807 on September 1. Two-month call options on ACC with an exercise price of ₹840 are available. The volatility of ACC stock price is estimated at 20%, and the risk-free rate is 8%.a. What will be the Black-Scholes price of this call option?b. If this call option is trading at ₹31.40, compute the implied vol.c. Construct a two period Binomial tree for ACC, which can be later used to price this option.
Use the following information to answer the next two questions. MNO stock currently trades for $75. Call options on the stock mature in six months and have a strike price of $75. The expected standard deviation of the stock is 20% and the annual risk-free rate is 6%. 1) What should be the call premium according to the Black-Scholes model? 2) Use the Black-Scholes model to find the premium for a put option on MNO that expires in six months...
14. Note that the Black-Scholes formula gives the price of European call c given the time to expiration T, the strike price K, the stock’s spot price S0, the stock’s volatility σ, and the risk-free rate of return r : c = c(T, K, S0, σ, r). All the variables but one are “observable,” because an investor can quickly observe T, K, S0, r. The stock volatility, however, is not observable. Rather it relies on the choice of models the...
SOME DRAWBACKS OF BLACK-SCHOLES To provide one motivation for the development of ARCH models (next handout), we briefly discuss here some difficulties associated with the Black Scholes formula, which is widely used to calculate the price of an option. For example, consider a European call option for a stock. This is the right to buy a specific number of shares of a specific stock on a specific date in the future, at a specific price (the exercise price, also called...
Assume the Black-Scholes framework for options pricing. You are a portfolio manager and already have a long position in Apple (ticker: AAPL). You want to protect your long position against losses and decide to buy a European put option on AAPL with a strike price of $180.15 and an expiration date of 1-year from today. The continuously compounded risk free interest rate is 8% and the stock pays no dividends. The current stock price for AAPL is $200 and its...
Saved In addition to the five factors, dividends also affect the price of an option. The Black- Scholes Option Pricing Model with dividends is: All of the variables are the same as the Black-Scholes model without dividends except for the variable d, which for the varable d, which continuously compounde is the continuously compounded dividend yield on the stock The put call party condition is also altered when dividends are paid. The dividend- adjusted put-call parity formula is: where dis...
Question 1 a. A stock price is currently $30. It is known that at the end of two months it will be either $33 or $27. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a two-month European put option with a strike price of $31? b. What is meant by the delta of a stock option? A stock price is currently $100. Over each of the next two three-month periods it is...
please show all work. show all formulas. thank you Question #1: Use the Black-Scholes formula to find the value of a call option on the following stock: 6 months Time to expiration Standard Deviation Exercise Price Stock Price Interest Rate 50% per year S50 $50 10% Question #2: Find the value of put option on the stock in the previous problem with the same information above (Hint: there are two ways of calculating such value).
1. The stock of the McCall Corporation is currently trading at $42 per share. The stock’s volatility as measured by its standard deviation is 20%. If the strike (exercise) price for a certain set of options on McCall stock carry a strike price of $40, and the options run for 6 months (180 days), determine the Black-Scholes model values for: N (d1), N (d2), N (- d1), and N (- d2). (Assume the risk-free rate is 10% and that the...