Optival’s stock is currently trading at $60 per share with a historical volatility of 20%. The risk-free rate is 4%. Consider a European call and put option on Optival’s stock with an exercise price of $55 that expires in 2 years. Use excel or a similar program to determine the option price using the Black-Scholes formula. (a): What is the value the European call and put option on Optival’s stock with a strike price of $60? (b): To the nearest cent, how much does the option value change for the following adjustments to the input values: ∆ in Call Value ∆ in Put Value ↑ stock price by $1 to $61 ↑ strike price by $1 to $56 ↑ the rF by 1% to 5% ↑ volatility by 1% to 21% ↑ time to maturity by 1 yr (c): Why does the value of the call increase by less than $1 when the stock price increases by $1? (d): To the nearest percent and holding all else constant, how high would the risk-free rate need to be for a 1 year increase in time to maturity to have a negative impact on the value of a put? Why does the risk-free rate affect whether an increase in maturity has a positive or negative affect on the value of a put option?
Optival’s stock is currently trading at $60 per share with a historical volatility of 20%. The risk-free rate is 4%. Consider a European call and put option on Optival’s stock with an exercise price of $55 that expires in 2 years. Use excel or a similar program to determine the option price using the Black-Scholes formula.
(a): What is the value the European call and put option on Optival’s stock with a strike price of $60?
(b): To the nearest cent, how much does the option value change for the following adjustments to the input values:
∆ in Call Value ∆ in Put Value
↑ stock price by $1 to $61
↑ strike price by $1 to $56
↑ the rF by 1% to 5%
↑ volatility by 1% to 21%
↑ time to maturity by 1 yr
(c): Why does the value of the call increase by less than $1 when the stock price increases by $1?
(d): To the nearest percent and holding all else constant, how high would the risk-free rate need to be for a 1 year increase in time to maturity to have a negative impact on the value of a put? Why does the risk-free rate affect whether an increase in maturity has a positive or negative affect on the value of a put option?
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