Exercise #2 Construct the following table and make a chart which shows the call price and intrinsic value. S 50 Current stock price X 50 Exercise price T 0.50000 Time to maturity of option (in years) r 10.00% Risk-free rate

Exercise #2
		Construct the following table and make a chart
		which shows the call price and intrinsic value.

S	50	Current stock price
X	50	Exercise price
T	0.50000	Time to maturity of option (in years)
r	10.00%	Risk-free rate of interest
Sigma	25%	Stock volatility

d₁	0.3712	<-- (LN(S/X)+(r+0.5sigma^2)T)/(sigma*SQRT(T))
d₂	0.1945	<-- d₁-sigma*SQRT(T)

N(d₁)	0.6448	<-- Uses formula NormSDist(d₁)
N(d₂)	0.5771	<-- Uses formula NormSDist(d₂)

Call price	4.79	<-- SN(d₁)-Xexp(-rT)N(d₂)
Put price	2.35	<-- call price - S + XExp(-rT): by Put-Call parity
	2.35	<-- Xexp(-rT)N(-d₂) - SN(-d₁): direct formula

			Stock	Call	Intrinsic
			price	price	value

			43		0
			45		0
			47		0
			49		0
			50	4.79112	0
			51		1
			53		3
			55		5
			57		7
			59		9
			61		11
			63		13

10 years ago

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