Ch%2016_p1 - Figure 14.32 Pricing a Call Option 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Ch%2016_p1 - Figure 14.32 Pricing a Call Option 1 2 3 4 5 6...

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Figure 14.32 Pricing a Call Option Page 1 Pricing a call option Problem 1 Chapter 16 Current Stock Price $100.00 Exercise Price #ADDIN? Mean annual growth rate - Annual volatility 20% Risk-free rate 12% Option Duration 1 Stock Price in one year #ADDIN? Option cash flows at termination #ADDIN? Discounted value of option #ADDIN? cash flows at termination Summary Information Workbook Name P16_1.XLS Number of Simulations 3 Number of Iterations 400 Number of Inputs 2 Number of Outputs 1 Sampling Type Latin Hypercube Simulation Start Time 4/6/2010 10:12 Simulation Stop Time 4/6/2010 10:12 Simulation Duration 00:00:07 Random Seed 868959835 Output Statistics Exer Price Name Cell Sim Minimum Mean Maximum x1 p1 x2 p2 $90.00 Discounted value of option D12 1 $- $21.32 $101.12 $- 5% $55.88 95% $100.00 Discounted value of option D12 2 $- $14.46 $92.26 $- 5% $47.01 95% $110.00 Discounted value of option D12 3 $- $9.13 $83.39 $- 5% $38.14 95% An increase in the exercise price decreases option value, because it is less likely that option will be exercised. Output Statistics Outputs Discounted Discounted value of Discounted value of option Simulation 1 2 3 Statistics / Cell

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