The inputs to the Black-Scholes model are the current harm of the underlying electropositive (S), the form or strike price of the alternative (K), the term to expiration of the option in fractions of a year (t), the sectionalization of the underlying asset (cr2), and the continuously-compounded risk-free interest rate (r). In this problem, the inputs are:S = $55 ?2 = 0.0625 K =$50 r = 0.10 t = 1 After identifying the inputs, solve for dl and d2: dl = [In(S/K) + (r + 0.5*?2)(t) ] / (?2t)1/2 = [In(55/50) + {0.10 + ½(0.0625)}(1) ] / (0.0625*1)1/2 = 0.9062 d2 = dl- (?2t) 1/2 = 9062 - (0.0625*1) 1/2 = 0.6562 Find N(dl) and N(d2), the area under the conventionality carousal from negative eternity to dl and negative infinity to d2, respectively. N(dl) = N(0.9062) = 0.8176 N(d2) = N(0.6562) = 0.7442 fit in to the Black-Scholes formula, the price of a European call option (C) on a non-dividend paying common stock is: C = SN(dl) - Ke-rtN(d2) = (55)(0 .8176) - (50)e-(.10)(1) (0.7442) = $11.30 The Black-Scholes wrong of the call option is $11.30.
For Part 2 and 3, revel name to the Excel spreadsheet. The Black Scholes look ons can be computed truly handily using EXCEL. For the mathematical formulas, just enjoyment log (x, 2.7182818) for the natural logarithmic matter, use exp(x) for the exponential function and normsdist (x) for the bill normal distribution function. It can be slow notable that for part 2 the resolution is $8.24, and for part 3 the answer is $24.01. Hence its clear that the intrinsic value system is wrong and that option with stock price equaling the exercise price can be quite valuable. ***! END***If you fate to abbreviate a full essay, order it on our website: BestEssayCheap.com
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