Risk free rate factor (R)=1+2%=1.02
Upward price factor(u)= 1+15%=1.15
Downward price factor(d)=1-15%=0.85
Probability of upward price =(R-d)/(u-d)=(1.02-0.85)/(1.15-0.85)=56.67%
Probability of downward price=1-56.67%=43.33%
Upward Price after 1 year=50*1.15=57.5
Downward price after 1 year=50*0.85=42.5
Expected call option payoff= (57.5-50)*56.67%+0*43.33%=$4.25
Present value of expected payoff=4.25/1.02=$4.17(approx)
Hence, value of call option is $4.17
The current price of the share is around $37 and hence the value of call option with strike price 50 is lower than above price.
standard deviation is 15% and stock price is 50 exercise price is 50 3. Use a...
3. Use a one step binomial option pricing model to value a 1 year at the money call option on AT&T. Assume interest rates are 2%. How does your value compare with the market price?
Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividende 6 months 51% per year $41 $40 6% Calculate the value of a call option. (Do not round intermediate calculations. Round y Value of a call option
Binomial option pricing model A stock currently trades for $41. In one month, the price will either be $50 or $36. The annual risk-free rate is 6%; assume daily interest compounding, and 365 days per year. The value of a one-month call option with an exercise price of $39 is $______.
Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 43% per year $58 $57 Calculate the value of a call option. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call option
Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 47% per year $59 $58 Calculate the value of a call option. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Value of a call option
Use the Black-Scholes formula for the following stock: Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend 6 months 56% per year $55 $54 6% Calculate the value of a call option. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of a call optionſ
Suppose that the current price of BA stock is $200. The annual standard deviation is 10%. the continuously compounded risk-free rate is 4% per year. Assume BA pays no dividends a. Compute a European put option price with the respective intrinsic values of a 2 year with a strike price of $198 using a four=step binomial model (Δt = 0.5). b.. Compute an American put option price with the respective intrinsic values of a 2 year with a strike price...
Use the Black-Scholes formula for the following stock: 6 months Time to expiration Standard deviation Exercise price Stock price Annual interest rate Dividend $60 $60 Recalculate the value of the call with the following changes: Time to expiration Standard deviation Exercise price Stock price Interest rate 3 months 25% per year $64 7% Calculate each scenario independently. (Round your answers to 2 decimal places.) Value of the Call Option : ooo
Binomial option pricing model A stock currently trades for $41. In one month, the price will either be $47 or $34. The annual risk-free rate is 6%; assume daily interest compounding and 365 days per year. The value of a one-month call option with an exercise price of $39 is $______.
15: Interest rates are 10% per annum continuously compounded. The price of the stock is currently $100 per share. In one year the price will be either $125 per share or $75 per share. Using a one period Binomial Tree Model as outlined in Section 75, find the value, now, of the call option with exercise price of 100. What is the hedge ratio? Now calculate the answers for exercise prices of 90 and 110.