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Black-Scholes Model


Jared Lazarus has just been named the new chief executive officer of Blubell Fitness Centers, Inc. In addition to an annual salary of $400,000, his three year contract states that his compensation will include 10,000 at-the-money European call options on the company's stock that expires in three years. The current stock price is

Investment Opportunities as Real Options: Getting Started

I am trying to understand how Real Options are used as an investment tool for projects. Can you please help me with the Targhee Log Homes Case? The questions are: 1. Do you share Bushong and Sweet's concerns that the analyst has missed something? 2. What would you do differently if you were the analyst?

Financial Reporting - Sample Quiz

1) Mast, Inc. reports a taxable and financial loss of $650,000 for 2009. Its pretax financial income for the last two years was as follows: 2007 $300,000 2008 400,000 The amount that Mast,Inc. reports as a net loss for financial reporting purposes is 2009, assuming that it uses the c

Discussing Various Aspects of Accounting

1. As an investor, would you prefer a stock dividend, cash dividend or stock split? Why? How do each of these impact a company's financial statement? What are some benefits of a stock split for a company? What are some benefits for an investor? Why would a company choose one over the other? 2. Should an organization issu

Landry's financial statements

Using Landry's Restaurants, Inc. 2003 Annual Report located in Appendix A of the text, Fundamentals of Financial Accounting, prepare a 1,050-1,750-word paper in which you answer ALL of the following questions, relative to the company and its annual report: a. What does the income statement tell you about the company and its fin

The Black-Scholes Formula

A. Use the Black-scholes formula to find the price of a three-month European call option on a non-dividend-paying stock with a current price of $50. Assume the exercise price is $51, the continuously compounded riskless interest rate is 8% per year, and standard deviation is .4. b. What is the composition of the initial repli

Calculate the Black-Scholes value for a European-style call option with an exercise price of $70. Calculate the price of a 91-day European-style put option on ARB stock having the same exercise price. How would a change in dividend policy impact the call option's value?

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) Calc

The Black-Scholes Model: 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 = 0.025 T = 0.5 (6 months) σ = 0.35 Ct = $6.2523 1. Using the values of K, rf, T, and σ specified above, tabulate and plot c


I would really like to know the solutions to these problems to make sure that I am doing them correctly. Problems: 1. You intend to purchase a 20-year, $1,000 face value bond that pays interest of $35 every 6 months. If your nominal annual required rate of return is 9.5 percent with semiannual compounding, how much should

Options Problem

Please help with the following problem. Evaluate the following statement: "A call option on a portfolio of stocks is more valuable than a portfolio of call options on each of the stocks in the portfolio". II) Use your own data to set up a hypothetical example to substantiate the above statement (NB: you can use any prici

1) Conduct research on two different models used to price call options.

1) Conduct research on two different models used to price call options. Detail each model in a Word document and focus on comparing and contrasting the models. 2) Consider a two-period, two-state world. Let the current stock price be $60 and the risk-free rate be 10%. In each period, the stock price can either go up by 15% o

Derivatives and Black-Scholes Model

1. David is interested in purchasing a European call option on Divine Vines, Inc., a non-dividend-paying common stock, with a strike price of $30 and three months until expiration. Divine's stock is currently trading at $60 per share, and the annual variance of its continuously compounded returns is 0.36. Treasury bills that m

Black and Scholes, Binomial Model, hedge ratios, arbitrage opportunity

Question 1) Panera's (PNR) stock price is $45. Its standard deviation is 35%. Interest rates are 3%. You are interested in an 8-month call. u and d are computed based on the formulas: 1. Draw the two-period binomial tree for PNR call options with exercise price = $40. . 2. Compute the hedge ratios at time 0 and after 4 mont

Use the Black and Scholes equations to compute the value of a call and a put. Check the answer with the bsm calculator. Compute the . delta-theta-gamma approximation for a value of a call. What are the combined Delta, vega, and Theta of your position?

1. RED DOT currently sells for $56, its volatility is 35% interest rates 2%. Use the Black and Scholes equations to compute the value of a call and a put. The strike price is $55 and the options expire in 220 days. 2. Check the answer with the bsm calculator 3. Compute the . delta-theta-gamma approximation for a value of

Options, risk-neutral probability, standard deviation, logarithm of a stock

1) A stock price is currently $100. Over each of the next two three-month periods it is expected to increase by 12% or fall by 12%. Consider a six-month European call option with a strike price of $105. The risk-free rate is 3%. What is the risk-neutral probability of a 12% rise in both quarters? 2) A stock price is currentl

Price of a Call Option Using the 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 $30 (2) Exercise price is $35 (3) time to expiration is 4 months, (4) annualized risk-free rate of 5%, and (5) variance of stock return is .25

Purcell Industries: Black Scholes Option Pricing Model

Assume you have been given the following information on Purcell Industries Current Stock Price= $15 Exercise Price Option=$15 Time to maturity of option=6 months Risk-free rate=6% d2=.00000 d1=.24495 N(d2)=.50000 N(d1)=.59675 Using the Black-Scholes Option Pri

Question about Value of Call Option using Black-Scholes model

An analyst is interested in using the Black-Scholes model to value call options on the stock of Ledbetter Inc. The analyst has accumulated the following information: · The price of the stock is $40. · The strike price is $40. · The option matures in 3 months (t = 0.25). · The standard

Derivatives- option pricing

Need answers with calculations in Excel spreadsheet. 1. A stock currently sells for $50 and pays no dividends. There is a call option (striking price = $55) on this security that expires in 61 days. At present U.S. Treasury bills are yielding 3.3 percent per year. You estimate the past volatility of the stock returns to be 39

Future contracts : margin account, theoretical future price for the contract, hedging price risk using futures, future contract to reduce beta of an investment. Options- put, theoretical value, Black model to compute the value of the call option

1. The CBOT offers a mini Dow Jones future contract. The multiplier on the contract is 10. The initial margin is $6,000; maintenance margin is $2,500. As of the close of trading Monday, February 18 the June contract was priced at 12358. You can find quotes at the Wall Street Journal's Market Data Center. Assume that on Monday

Derivative problems: Option Pricing

Please see the attached file. 1) Option pricing principles are now often used in corporate finance applications. It is common to look at equity in a corporation as an option. What type of option is equity similar to? Discuss what factors would affect the price of equity and in what direction based on this option pricing view.