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Author Question: The period of time over which there is at least one fixed input is the A) calendar year. B) long ... (Read 173 times)

james0929

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on: Jun 30, 2018
The period of time over which there is at least one fixed input is the
 A) calendar year.
  B) long run.
  C) short run.
  D) market horizon.

Question 2

Derive the Black-Scholes formula to represent the relationship between the price of an option and the price of its underlying stock.


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dreamfighter72

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Reply #1 on: Jun 30, 2018
Answer to Question 1

C

Answer to Question 2

Let C be the value of a call option, with
S = current price of the underlying stock
K = the strike price
ln = natural logarithm to base e
r = interest rate
T = time to expiration
 = standard deviation of returns on underlying stock
N1(d1) and N2(d2) = cumulative standard normal distribution functions.
Then,
C = SN(d1) - Ke-rTN(d2),
With
d1 = ln(S/K) + (R + 22  T and d2 = d1 - T


james0929

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Reply 2 on: Jun 30, 2018
Great answer, keep it coming :)

sarah_brady415

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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