QUESTION 3 A European call option written on one share of Medident Corp. has the following...

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QUESTION 3 A European call option written on one share of Medident Corp. has the following parameter values: S = $220, X = $2

business finance

Answer 1

Answer #1

So lets simplify the above problem

Spot price $220 , Strike Price $200, Volatility = 20% , Time = 12 months, Risk Free Interest Rate = 5%

There is no mention of Dividend which we will assume to be NIL

Call option Premium = SN(d1) - Xe^-rT N(d2) = 220 N( d1) - 200 e^-5*1 N (d2)

For finer details if required N= Normal distribution with 20% Standard Distribution ( sigma)

di & d2 has to be solved with logarithmic tables as they represent statistical probabilities over the time ( T) to maturity

On solving the above ANSWER is 35.33 which is Call options premium

Answer 2

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