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7: Option Pricing
CHAPTER 7
OPTION PRICING
Problem 1
4
Call Value
3
2
1
0
0 47 50 51 54
Share Price
Problem 2
0 90 100 110
0
Call Value
-5
-10
-15
Share Price
Problem 3
1
I. M. Pandey, Financial Management, 9th Edition, New Delhi: Vikas.
8
6
Call Value
4
2
0
-2 0 95 98 99 100 101 108
-4
Share Price
Problem 4
Problem 5
0
97 100 101 104
Problem 6
2
Ch. 7: Option Pricing
90 100 110
0
Value of Put
-5
-10
-15
Share Price
Problem 7
Value of Put
91 92 93 94 95 96 100 108
2
Value of Put
0
-2
-4
-6
Share Price
Problem 8
3-month put: 30 16
Exercise price, E 50 40 6
Premium 4 50 -4
Current share price, So 52 60 -4
20
Value of Put
0
30 40 50 60
-20
Share Price
3
I. M. Pandey, Financial Management, 9th Edition, New Delhi: Vikas.
Problem 9
10
Value of Put
5
0
-5 60 65 70 75
-10
Share Price
Problem 10
Problem 11
Problem 12
4
Ch. 7: Option Pricing
Pay-off 15
10
0
90 97 100 110
Share Price
Problem 13
10
5
Value
0
90 97 100 110
-5
-10
Share Price
Problem 14
5
I. M. Pandey, Financial Management, 9th Edition, New Delhi: Vikas.
Problem 15
Problem 16
Problem 17
6
Ch. 7: Option Pricing
Problem 18
d2 =
[ ]
ln (S / E ) + rf − σ2 / 2 t
σ t 0.3430
N(d1) 0.7343
N(d2) 0.6342
Value of call
C = SN(d1 ) − Ee − rf t N(d 2 ) 10.88
Value of put
P = C − S + Ee − rf t 3.20
Delta 0.7343
Problem 19
d1 =
[
ln(S / E ) + rf + σ 2 / 2 t ] 0.06278
σ t
d2 =
[ ]
ln (S / E ) + rf − σ2 / 2 t
-0.2836
σ t
N(d1) 0.5250
N(d2) 0.3883
Value of call
C = SN(d1 ) − Ee − rf t N(d 2 ) 10.45
Value of put
13.81
P = C − S + Ee − rf t
Delta 0.5250
7
I. M. Pandey, Financial Management, 9th Edition, New Delhi: Vikas.
Problem 20
2.9616
d2 =
[ ]
ln (S / E ) + rf − σ2 / 2 t
σ t 2.2545
N(d1) 0.9985
N(d2) 0.9879
Value of equity 193.71
C = SN(d1 ) − Ee − rf t N(d 2 )
Market value of debt 36.29
Problem 21
Problem 22
8
Ch. 7: Option Pricing
30.00
22.50 Premium
Gain
7.50
0.00
120 130 140 150 160 170
-7.50
Problem 23