Question

Consider an option on a non-dividend-paying stock when the stock price is $52, the exercise price is $50, the risk-free interest rate is 10% per annum, the volatility is 30% per annum, and time to maturity is 3 months

What is the price of the option if it is a European call?

Answer 1

The price of the call option using Black-Scholes model is found using the following equation

d₁ = 0.503138086

d₂ = 0.353138086

To find N(d₁) and N(d₂) , we use the NOMRSDIST function in excel

N(d₁) = 0.692566404

N(d₂) = 0.638007539

-----------------------------------------------------------------------------------------------

C₀ = $ 4.90

The price of the option = $ 4.90