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Black-Scholes - Assignment Example

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First of all, reflect on the boundary condition for the call at expiration when T = 0. For one to accomplish this, reflect on the formula for the call option to be T → 0, that is as the time until maturity goes to 0. At…
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Black-Scholes
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"Black-Scholes"

Download file to see previous pages Sensitivity Analysis In this question examine what happens to the price of the European call option when some of the parameters which enter the Black-Scholes formula vary. Question One 1. Give the Black-Scholes formula for the price C0 of a European call option. Define carefully all the variables that enter into the formula Where; C0 is the theoretical call value  Is the estimated value of an option S is the current stock price  Is the present value of options in the market such as New York State Exchange. N is the cumulative standard normal probability distribution (Franke, Härdle and Hafner, 2015) r is the risk free rate  Is the hypothetical rate of return of an option with no risk of fiscal loss. T is time to maturity  Is the remaining lifespan of an option X is the option strike price  The price at which call option can be exercised AND While Therefore, ...Download file to see next pagesRead More
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