Black-Scholes Call-Option Valuation
Current Stock Price (S0) = $68 Strike Price (X) = $70 interest rate (r) = 0.06 annual dividend yield (δ) = 0 Time to expiration = 45 days (0.125 years) Standard deviation (σ) = 0.41 [A standard normal table is provided in Cat Courses under “Other Files” Folder.]
(a) Using the Black-Scholes formula, find the value of a call option given the above information.
(b) What is the price of the put-option, with the same strike price and expiration date as the call, using the same information? [Hint: Use the Put-Call Parity relationship]
(c) Recalculate the value of the call option and the put option if the time to expiration was 90 days (T = 0.25) instead of 45 days. Assume all other variables remain constant.