3. Black-Scholes Option Pricing on Dividend-paying stock Suppose the stock price is 100 and we need...
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3. Black-Scholes Option Pricing on Dividend-paying stock Suppose the stock price is 100 and we need to price an option with a strike of 95 maturing in 9 months. The stock is expected to pay dividends 6-0.03 per year. The continuously- compounded risk free rate is 8% per year, and the standard deviation of the stock return is 30% per year. a. (3 points) What are d₁, d₂, N(d₁) and N(d₂)? b. (3 points) What is the Black-Scholes call price? c. (3 points) What is the Black-Scholes price for the European put with the same strike and maturity? d. (3 points) Which synthetic call option (stock and the bond) and synthetic put option (stock and the bond) is equivalent to the European call option and European put option, respectively. 3. Black-Scholes Option Pricing on Dividend-paying stock Suppose the stock price is 100 and we need to price an option with a strike of 95 maturing in 9 months. The stock is expected to pay dividends 6-0.03 per year. The continuously- compounded risk free rate is 8% per year, and the standard deviation of the stock return is 30% per year. a. (3 points) What are d₁, d₂, N(d₁) and N(d₂)? b. (3 points) What is the Black-Scholes call price? c. (3 points) What is the Black-Scholes price for the European put with the same strike and maturity? d. (3 points) Which synthetic call option (stock and the bond) and synthetic put option (stock and the bond) is equivalent to the European call option and European put option, respectively.
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Answer rating: 100% (QA)
Stock Price S 100 Strike Price K 95 Time To Maturity T 9 months 912 years 075 Dividend Payment 003 p... View the full answer
Related Book For
Principles of Macroeconomics
ISBN: 978-0134078809
12th edition
Authors: Karl E. Case, Ray C. Fair, Sharon E. Oster
Posted Date:
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