Business, 12.08.2020 07:01 soniarosechavez1

7. The Black-Scholes option pricing model The Black–Scholes option pricing model (OPM) was developed in 1973. The creation of the Black–Scholes OPM played a significant role in the rapid growth of options trading. Under the assumptions used by Fischer Black and Myron Scholes to derive the Black–Scholes model, if the option price is the price found using the Black–Scholes model, arbitrage opportunities will exist. According to the Black–Scholes Option Pricing Model, if the exercise price, X, increases, the value of the call option . Purple Pigeon Bird Seed Company has a current stock price of $20.00. A call option on this stock has an exercise price of $20.00 and 0.36 year to maturity. The variance of the stock price is 0.04, and the risk-free rate is 5%. You calculate d₁ to be 0.21 and N(0.21) to be 0.5832. Therefore, d₂ will be 0.09 and N(0.09) will be 0.5359. Using the Black–Scholes Option Pricing Model, what is the value of the option? (Note: Use 2.7183 as the approximate value of e.) $0.853 $1.251 $1.023 $1.137

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7. The Black-Scholes option pricing model The Black–Scholes option pricing model (OPM) was developed...