Question: 1a) Let S = $60, s = 30%, r = 7%, and d = 3% (continuously compounded). Compute the Black-Scholes price for a $65-strike European

1a) Let S = $60, s = 30%, r = 7%, and d = 3% (continuously compounded). Compute the Black-Scholes price for a $65-strike European call option with 6 months until expiration.

Answers:

a.

$2.18

b.

$0.00

c.

$3.52

d.

$3.67

e.

$7.18

1b) Let S = $32, s = 30%, r = 6.5%, and d = 1% (continuously compounded). Compute the Black-Scholes price for a $35-strike European put option with 9 months until expiration.

Answers:

a.

$4.21

b.

$5.63

c.

$3.00

d.

$4.02

e.

$2.63

1c) Let S = $64, s = 42%, r = 7.5%, and d = 1% (continuously compounded). Compute the Black-Scholes delta (D) of a $65-strike European put option with 3 months until expiration.

Answers:

a.

0.5419

b.

0.4556

c.

0.4839

d.

0.3240

e.

0.4292

1d) Let S = $38, s = 28%, r = 5%, and d = 1% (continuously compounded). Compute the Black-Scholes gamma (G) of a $45-strike European call option with 3 months until expiration.

Answers:

a.

0.0541

b.

0.0268

c.

0.0361

d.

0.1428

e.

0.0424

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