You have a European call option with the following input parameters: Current price: 71 Strike price: 50

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You have a European call option with the following input parameters:

Current price: 71€

Strike price: 50€

Interest rate: 0.3%

Estimated volatility: 50%

Time till maturity: 2 years

The only quantity that is not known when an option is sold is the volatility. You have asked several experts who have described scenarios with 52%, 47%, 70%, 53%, 61%, 71% and 55%.

Perform a Monte Carlo simulation for a risk-sensitive evaluation of the fair option price.

Hint: Use the approximation formula $ΔPΔσ≈∧\' tabindex="0">ΔPΔσ≈∧$

Related Book For answer-question

Fundamentals of Futures and Options Markets

ISBN: 978-0132993340

8th edition

Authors: John C. Hull

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Posted Date: Jul 27, 2020 10:44 AM

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You have a European call option with the following input parameters: Current price: 71 Strike price: 50

Question:

Expert Answer:

First we tabulate the values on an excel spreadsheet as shown be... View the full answer

Fundamentals of Futures and Options Markets

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