Question

3.3 In the Black-Scholes option-pricing model, if volatility increases, the value of a call option will increase but the value of the put option will decrease. (True / False)

3.4 The Black-Scholes option pricing model assumes which of the following?

- Jumps in the underlying price
- Constant volatility of the underlying
- Possibility of negative underlying price
- Interest rate increasing as option nears expiration

Answer #1

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Q3.3

As per black scholes option pricing model.

The premium/value increases depending upon the call option/put option:

For a Call option, there is an increase in premium with an
increase in:

1. Underlying asset price.

2. Time to Expiration

3. Volatility of the Underlying.

For a Put option, there is an increase in premium with an increase
in:

1. Stike price

2. Time to Expiration.

3. Volatility of the Underlying.

Answer: False

Q3.4:

Black Scholes option pricing model assumes constant volatility of the underlying.

In the case of the binomial model, there is a jump in the underlying price.

Answer: constant volatility of the underlying.

1. What is the
value of the following call option according to the Black Scholes
Option Pricing Model? What is the value of the put options?
Stock Price = $55.00
Strike Price = $50.00
Time to Expiration = 3 Months = 0.25 years.
Risk-Free Rate = 3.0%.
Stock Return Standard Deviation = 0.65.
SHOW ALL WORK

Which of the inputs in the Black-Scholes-Merton option pricing
model are directly observable?
The price of the underlying security
The risk-free rate of interest
The time to expiration
The variance of returns of the underlying asset return
The price of the underlying security, risk-free rate of
interest, and time to expiration

1. Calculate the value of the D1 parameter for a call option in
the Black-Scholes model, given the following information: Current
stock price: $65.70 Option strike price: $74 Time to expiration: 7
months Continuously compounded annual risk-free rate: 3.79%
Standard deviation of stock return: 22%
2. Calculate the value of the D2 parameter for a call option in
the Black-Scholes model, given the following information: Current
stock price: $126.77 Option strike price: $132 Time to expiration:
6 months Continuously compounded...

7. Use the Black -Scholes formula to find the value of a call
option on the following stock:
Time to expiration = 6 months
Standard deviation = 50% per year
Exercise price = $50 Stock price = $50
Interest rate = 3%
Dividend = 0
8. Find the Black -Scholes value of a put option on the stock in
the previous problem with the same exercise price and expiration as
the call option.
NEED HELP WITH NUMBER 8

Using the Black-Scholes Option Pricing Model, what is
the maximum price you should pay for a European call options on a
non-dividend paying stock when the stock price is GHS70.00, the
strike price GHS75.00, with a risk-free rate of 6% per year and a
volatility 19% per year. The time to expiration is half a year?
(7marks)
Using your answer above how many call options must you buy in
order to create a perfect hedge given that you currently...

Use Black-Scholes model to price a European call option
Use the Black-Scholes formula to find the value of a call option
based on the following inputs. [Hint: to find N(d1) and N(d2), use
Excel normsdist function.] (Round your final answer to 2
decimal places. Do not round intermediate
calculations.)
Stock price
$
57
Exercise price
$
61
Interest rate
0.08
Dividend yield
0.04
Time to expiration
0.50
Standard deviation of stock’s
returns
0.28
Call value
$

Black-Scholes Model Use the Black-Scholes Model to find the
price for a call option with the following inputs: (1) Current
stock price is $21. (2) Strike price is $24. (3) Time to expiration
is 5 months. (4) Annualized risk-free rate is 4%. (5) Variance of
stock return is 0.17. Round your answer to the nearest cent. In
your calculations round normal distribution values to 4 decimal
places.
Please show step by step calculations in excel. Thank you

If the volatility of the underlying asset increases, then
the:
Value of the put option will increase, but the value of the call
option will decrease.
Value of the put option will decrease, but the value of the call
option will increase.
Value of both the put and call options will increase.
Value of both the put and call options will decrease.
Value of both the put and call options will remain the same.

This question refers to the Black-Scholes-Merton model of
European call option pricing for a non-dividend-paying stock.
Please note that one or more of the answer choices may lack some
mathematical formatting because of limitations of Canvas Quizzes.
Please try to overlook such issues when judging the choices.
Which quantity can be interpreted as the present value of the
strike price times the probability that the call option is in the
money at expiration?
Group of answer choices
Gamma
K∙e^(rT)∙N(d2)
Delta...

Use the Black-Scholes model to find the value for a European put
option that has an exercise price of $49.00 and 0.4167 years to
expiration. The underlying stock is selling for $40.00 currently
and pays an annual dividend yield of 0.01. The standard deviation
of the stock’s returns is 0.4400 and risk-free interest rate is
0.06. (Round your final answer to 2 decimal places. Do not
round intermediate calculations.)
Put value
$
?

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