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s the variance, o², increases, the value of the call option

s the variance, o², increases, the value of the call option

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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5. The Black-Scholes option pricing model Аа Аа The Black-Scholes option pricing model (OPM) was developed in 1973. The creation of the Black-Scholes OPM played a significant role in the rapid growth of options trading. The derivation of the Black-Scholes Option Pricing Model rests on the concept of a According to the Black-Scholes Option Pricing Model, as the variance, o2, increases, the value of the call option Merry Melon Fruit Company has a current stock price of $32.00. A call option on this stock has an exercise price of $32.00 and 0.49 year to maturity. The variance of the stock price is 0.04, and the risk-free rate is 7%. You calculate di to be 0.32 and N(0.32) to be 0.6255. Therefore, d2 will be 0.18 and N(0.18) will be 0.5714. Using the Black- Scholes Option Pricing Model, what is the value of the option? (Note: Use 2.7183 as the approximate value of e.) $2.113 $1.996 $2.700 $2.348
Transcribed Image Text:5. The Black-Scholes option pricing model Аа Аа The Black-Scholes option pricing model (OPM) was developed in 1973. The creation of the Black-Scholes OPM played a significant role in the rapid growth of options trading. The derivation of the Black-Scholes Option Pricing Model rests on the concept of a According to the Black-Scholes Option Pricing Model, as the variance, o2, increases, the value of the call option Merry Melon Fruit Company has a current stock price of $32.00. A call option on this stock has an exercise price of $32.00 and 0.49 year to maturity. The variance of the stock price is 0.04, and the risk-free rate is 7%. You calculate di to be 0.32 and N(0.32) to be 0.6255. Therefore, d2 will be 0.18 and N(0.18) will be 0.5714. Using the Black- Scholes Option Pricing Model, what is the value of the option? (Note: Use 2.7183 as the approximate value of e.) $2.113 $1.996 $2.700 $2.348
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