Consider the call option in Example 16.2. If it sells for $15 rather than the value of
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Consider the call option in Example 16.2. If it sells for $15 rather than the value of $13.70 found in the example, is its implied volatility more or less than 0.5? Use Spreadsheet 16.1 (available at the Online Learning Center) to find its implied volatility at this price.
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EXAMPLE 16.2 Black-Scholes Call Option Valuation You can use the Black-Scholes formula fairly easily. Suppose you want to value a call option under the following circumstances: First calculate Stock price Exercise price Interest rate Dividend yield Time to expiration Standard deviation d₁ = d₂ So = 100 X = 95 r = 0.10 8=0 T = 0.25 (one-quarter year) σ= 0.50 In(100/95)+ (0.100+ 0.5²/2)0.25 0.5 0.25 = 0.43 0.5√0.25 = 0.18 = 0.43 Next find N(d₁) and N(d₂). The normal distribution function is tabulated and may be found in many statistics textbooks. A table of N(d) is provided as Table 16.2. The normal distribution function N(d) is also provided in any spreadsheet program. In Microsoft Excel, for example,
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Related Book For
Essentials Of Investments
ISBN: 9780073368719
7th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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