The price of a non-dividend paying stock is now $52, and its annual volatility is 30%. The risk-free interest rate is 4% per annum with continuous compounding.

1. Calculate the BSM value of a three-month European call option with a strike price of $50
2. Calculate the BSM value of a three-month European put option with a strike price of $50
3. Verify that put-call parity holds for the call and the put option

Black Scholes Merton (BSM) Formulae

N(-d_i) = 1 – N(d_i)

N(0.403138) = 0.656577, N(0.253138) = 0.599919

N(-0.403138) = 1 - N(0.403138) = 0.343423, N(-0.253138) = 1 – N(0.253138) = 0.400081

Answer rating: 100% (QA)

To calculate the BlackScholesMerton BSM value of a threemonth European call and put option we can us... View the full answer