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Calculating the Value of Option

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Black-Scholes Model

Assume that you have been given the following information on Purcell Industries:
Current stock price = $18 Strike price of option = $13
Time to maturity of option = 4 months Risk-free rate = 5%
Variance of stock return = 0.13
d1 = 1.747426 N(d1) = 0.959718
d2 = 1.539259 N(d2) = 0.93813

According to the Black-Scholes option pricing model, what is the option's value? Round your answer to the nearest cent.
$_____

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Solution Summary

This solution depicts the steps to estimate the value of a option- the full solution is clearly presented in an Excel file.

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Solution:
Current Price of stock=S= 18
Strike price of option=K= 13
Risk free rate=r= 5%
Time remaining ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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