Using Excel:

Part3: Black-Scholes and Binomial Option Pricing

Let us compute an option price using Black-Scholes Model and Binomial Tree model.

1. Download daily BAC stock price from either Yahoo Finance or Bloomberg. The data periodis from December 31, 2014 and October 30, 2015. Compute log returns for each stock byusing the below equation.RT = ln(PTPT 1), t = T, T 1, . . . , 1

where RT is a stock return for BAC at time T (day) and PT is an adjusted close price at timeT.

2. Calculate both average and standard deviation of daily stock returns.R =XT1RiT =vuutX101Ri RT 1

3. Calculate an annualized return and standard deviation, which are given byRannualized = Rdaily 256annualized = daily 256