dstefan
06-10-2008, 03:13 AM
Chapter 3, Problem 6
Use the Black-Scholes formula to price both a put and a call option with strike 45 expiring in six months on an underlying asset with spot price 50 and volatility 20% paying dividends continuously at 2%, if interest rates are constant at 6%.
Solution:
Input for the Black--Scholes formula: S=50; K=45; T-t=0.5; \sigma=0.2; q=0.02; ~r=0.06.
The Black--Scholes price of the call is C = 6.508363 and the price of the put is P = 0.675920.
Use the Black-Scholes formula to price both a put and a call option with strike 45 expiring in six months on an underlying asset with spot price 50 and volatility 20% paying dividends continuously at 2%, if interest rates are constant at 6%.
Solution:
Input for the Black--Scholes formula: S=50; K=45; T-t=0.5; \sigma=0.2; q=0.02; ~r=0.06.
The Black--Scholes price of the call is C = 6.508363 and the price of the put is P = 0.675920.