Consider an option on a non-dividend-paying stock when the stock price is $67, the exercise price is $61, the risk-free rate is 0.5%, the market volatility is 30% and the time to maturity is 6 months. Using the Black-Scholes Model when necessary:
Given: Two dividend payments $1.75 and $2.75, two months and five months from now.
(v) Compute the price of the option if it is an American Call (In Excel & show formulas).
In case of American Call option, valuation should be done by use of Binomial Option pricing model ,by by Cox, Ross and Rubinstein .
Pay off at last node for call option: Max [ (Sn− K), 0 ]
Value of option at previous node
Stock Price: | 67.00 | |
Volatility (% per year): | 30.00% | |
Risk-Free Rate (% per year): | 0.50% |
Time to Expiration: | 0.5000 |
Exercise Price: | 61.00 |
Time | Dividend |
0.1667 | 1.75 |
0.4167 | 2.75 |
Probability of up move, p = 0.4667 | ||||
Up step size, u = 1.1618 | ||||
Down step size, d = 0.8607 |
Value of call option = $ 7.073
Consider an option on a non-dividend-paying stock when the stock price is $67
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. Use the Black-Scholes-Merton formula. What is the price of the option if it is a European call? What is the price of the option if it is an American call? What is the price of the option if it is...
Consider an option on a non-dividend paying stock when the stock price is $90, the exercise price is $98 the risk-free rate is 7% per annum, the volatility is 49% per annum, and the time to maturity is 9-months. a. Compute the prices of Call and Put option on the stock using Black & Scholes formula. b. Using above information, does put-call parity hold? Why?c. What happens if put-call parity does not hold?
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