Question: QUESTION 3 (a) Let S = RM100, K = 90, r = 8%, o = 5% and T = 1. Find the Black-Scholes call price.

QUESTION 3 (a) Let S = RM100, K = 90, r

QUESTION 3 (a) Let S = RM100, K = 90, r = 8%, o = 5% and T = 1. Find the Black-Scholes call price. (5 Marks) (b) From (a), now price a put where S = RM90, K = RM100, 0 = 30%,r = 5%, 8 = 8%. and T = 1. (6 Marks) (c) You observed the following information on a 6-month European Put option on a stock through your trading system: Stock Price Strike Price Dividend (C1) Interest Rate (C2) A (C3) 50.00 50.00 0.04 0.04 (C1) refers to a continuous dividend (C2) refers to continuous compounded risk free (C3) refers to using Black Scholes formula. -0.45 Note: Calculate the annual volatility of the stock. (8 Marks)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

INSTRUCTION: Use OptAll program for the following questions. When you open OptAll program, be sure you enable macro. The tabs of the worksheets indicate the corresponding option pricing models or...

Question II: The price of a non-dividend-paying stock is $100 and the continuously compounded risk-free rate is 5%. A 1-year European call option with a strike price of $100 x 0.05x1 = $105.127 has a...

Let S = $40, K = $40, r = 8% (continuously compounded), o = 30%, 8 = 0, T =0.5 years, and n = 2. a. Construct the binomial tree for the stock. Show that the fair call price is $4.11. b. Compute the...

Let S = $40, K = $40, r = 8% (continuously compounded), o = -30%, S = 0, T =0.5 years, and n = 2. = = = a. Construct the binomial tree for the stock. Show that the fair call price is $4.11. b....

Let S = $120, K = $90, =30%, =8%, =5% =1 a) What is the Black-Scholes call price? b)Now price a Put option, where S = $90, K = $120, =30%, =5%, =8% =1 c)Can you prove the link between a. and b. above?

10.12 Let S = $100, K = $95, r = 8% (continuously compounded), = 30%, = 0, T = 1 year, and n = 3. a. Verify that the binomial option price for an American call option is $18.283. Verify that there is...

Use the same data as in the previous problem only suppose that the call price is $5 instead of $4.110. In previous problem Let S = $40, K = $40, r = 8% (continuously compounded), = 30%, = 0, T =...

You are given that some stock has satisfies the following: S(0) = 105 r = dividend rate= 0.03, A one year at the money European put costs 21.688. What is the implied volatility of this stock? Problem...

Consider the following Collateralized Mortgage Obligations (CMOs) with three classes of securities, Tranche A, Tranche B and Tranche Z. Please help to finish the 3 question in the file Take Home...

8 Option Markets Problems. Answers are provided. Please use the formula sheet that is attached separately to answer questions. Please show all work. Formulas: Options (Fin. 338) 1. Black-Scholes...

Sandhill Inc. is a private company reporting under ASPE. The following selected account balances were reported in Sandhill Inc.s financial statements at year-end: 2017 2016 Cash $ 18,675 $ 8,450...

Evaluate the financial performance of the company: a) Ability of the firm to pay its short-term liabilities using its most liquid asset b) % financed by the creditors c) Profit obtained by one...

A human resource department is evaluating its pay structurE A compensation specialist compute the comp ratio of the designers and determines that it is 1 . 4 what problem is most likely to result for...

*NOTE: What I have done so far is correct. The following balance sheet is for a local partnership in which the partners have become very unhappy with each other. $ Cash Land Building $ 41.000 135,000...