You calculate the black schoals value of a call option as $3.50 for a stock that doesnâ??t pay dividends but the actual price is $3.75 . The most likely explanation is that either the option is_________or the volatility you input into the model is too_________
a. Overvalued and should be written; low
b. Undervalued and should be written; low
c. Overvalued and should be purchased; high
d. Undervalued and should be purchased; high
The value of call is $3.50 against the actual price of $3.75 which means that ...
This solution exemplifies the value of volatility.