KIC000061

# KIC000061 - Call Option Example ExampJe: So = 100 r = .10...

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Unformatted text preview: Call Option Example ExampJe: So = 100 r = .10 cr = 5 0 What is the value of the call option? x = 95 T = .25 (quarter) d _ In(l 00/95)+(.1 +.5' /2).25 ,- .5.[25 d, = d,-.5.[25 =.18 .43 Probabilities from Normal Dist. We can either look up the values for N(d l ) and N(d 2 ) in a table, or use the =Dormsdist( ) function in Excel. => N (d,) = N (.43) = .6664 => N (d,) = N (.18) = .5714 Put Option Value If the Bleck-Scholes formula we have used gives the value of a call option. then how can we find the value of the equivalent European put option? By using put-call parity: P=C+Xe-,T- S P =13.70 + 95e- 1Ox .25-100 P =~(".35 Standard Normal Distribution N ( d ) ~ S h a d e d a re a o Call Option Value Now we use these values to solve for the call option ' price: C = SN(d,)- Xe-,T N(dJ C = IOOx.6664-95e- IO ,.25 x.5714 C= lJ1S.70 Implied Volatility Of the five variable inputs used to solve for a call option price, the stock volatility has the most potential to impact the option's...
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## This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000061 - Call Option Example ExampJe: So = 100 r = .10...

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