Stock ABC has a current price of $100 and does not pay any dividends. An options trader, an alumnus of Derivatives class, sells a European call option written on this stock with a strike of $100. The call option will expire in one year. The trader estimates the volatility of the stock to be 20% per year. Finally, current interest rate is at 5% annually. How much does the trader can expect to receive according to the Black-Scholes model? 8.11 19.33 10.45 15.09 The trader in the above question receives $9.8 from selling the call. Which statement about the stock's volatility is correct? Volatility is higher than 20% Volatility is less than 20% Volatility is equal to 20%
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The formula for the price of a European call option is: C = S0 * N(d1) - X * e^(-rt) * N(d2) where: - S0 is the current price of the underlying asset - N is the cumulative distribution function of the standard normal distribution - X is the strike price of the Show more…
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