Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
A B C D E F G H I
Solution
Chapter:
8
Problem:
8
You have been given the following information on a call option on the stock of Puckett Industries:
P = $65 X = $70
t = 0.5
rRF = 5%
s = 0.50
a. Using the Black-Scholes Option Pricing Model, what is the value of the call option?
First, we will use formulas from the text to solve for d1 and d2.
Hint: use the NORMSDIST function.
(d1) = 0.038 N(d1) = 0.515108
(d2) = -0.316 N(d2) = 0.376125
Using the formula for option value and the values of N(d) from above, we can find the call option value.
VC= $7.803
Put option using Black-Scholes modified formula = $11.075
Put option using put-call parity = $11.075
b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is
the value of the put?
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
29
30
J
7/16/2015
You have been given the following information on a call option on the stock of Puckett Industries:
Using the formula for option value and the values of N(d) from above, we can find the call option value.
b. Suppose there is a put option on Puckett's stock with exactly the same inputs as the call option. What is
the value of the put?
