Black Scholes option price
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A share of ARB stock sells for $75 and has a standard deviation of return equal to 20% per year. The current risk-free rate is 9% and the stock pays two dividends:
1) a $2 dividend just prior to the option's expiration day, which is 91 days from now (one quarter of a year) and 2) a $2 dividend 182 days from now.
A) Calculate the Black-Scholes value for a European-style call option with an exercise price of $70.
B) Calculate the price of a 91-day European-style put option on ARB stock having the same exercise price.
C) How would a change in dividend policy impact the call option's value?
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Solution Summary
Calculates the Black-Scholes value for a European-style call option and a European-style put option for which the underlying asset is a dividend paying stock.
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