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# Black-Scholes Formula for European Stocks

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Given that Stock S and a European Call Option on Stock S
The current market price of stock S is \$20. (So = \$20)
This option of stock S has Exercise Price x=\$21 and Expiration Date is after 1 year (t=1)
The Risk free rate is 3%(Rf=3%). this rate is based on continuously compounding.

Suppose the market price of this option is \$0.63 (C=\$0.63). Draw the Profit-Loss Graphs for buying and selling this option and mark X and C in the 2 graphs.

Buying this European Call Option Graph Selling this European Call Option Graph

Question 2. Use bionomial Method to calculate the fair price of this option.
Suppose after one year, the terminal stock price St will be either \$22 or \$18.

Question 3. Use Black-Scholes Formula to calculate the fair price of this option.
Suppose theta equals to 10% (t=10%).