Share
Explore BrainMass

Option Valuation- Plot of option prices

Construct a spreadsheet that can be used for calculating Black-Scholes call option prices. Before proceeding, verify your model using the following parameters:
St = $60.00
K = $60.00
rf = 0.02
T = 0.3333 (3 months)
sigma (volatility) = 0.49
Ct = $6.8927
1. Using the values of K, rf, T, and sigma; specified above, tabulate and plot call prices and hedge ratios for values of St ranging from $50.00 to $70.00 in $1.00 increments. What conclusions can you draw from this plot?
2. Using the values of St, K, rf , and T specified above, tabulate and plot call prices for values of sigma ranging from 0.35 to 0.60 in 0.01 increments. What conclusions can you draw from this plot?
3. Using the values of St, K, rf , and T specified above, use your spreadsheet and trial and error (or Solver) to estimate the implied volatility (accurate to four decimal places) of a call with a price of $7.2568.
4. Using the values of St, K, rf , and s specified above, tabulate and plot call prices for values of T ranging from 0 to 52 weeks using 2-week increments (assume 1 week = 7/365 years). What conclusions can you draw from this plot?
5. Using the values of St, K, sigma , and T specified above, tabulate and plot call prices for values of rf ranging from 0.01 to 0.2 using 0.01 increments. What conclusions can you draw from this plot?
6. Modify your spreadsheet to calculate put prices. Using the values of K, rf, T, and & sigma specified above, tabulate and plot put prices for values of St ranging from $50.00 to $70.00 in $1.00 increments. What conclusions can you draw from this plot?
7. Relate the graphs to the Greeks. That is, state with graph is related to which Greek symbol.

Solution Summary

Uses Black Scholes model to calculate option prices. Construct a spreadsheet that can be used for calculating Black-Scholes call option prices. Tabulates and plots option values.

$2.19