Consider a European call option on a non-dividend-paying stock; when the option

Question

Consider a European call option on a non-dividend-paying stock; when the option is written, the stock price is So, the volatility of the stock price is , the strike price is K, the continuously compounded risk-free rate is r, and the term to expiration is T, let c be the price of the option. The Black-Scholes formula for the option price is where Ná) is the cumulative probability distribution function for a standardized normal distribution and di and dy are parameters dependant on the structure of the option, the level of interest rates, and the volatility of the stock price 13. )Using the terminology of the last question (re-printed above- Question 8 fr multiple choice section), specify the Black-Scholes formula for the price of a European put option on a non-dividend-paying stock om the (b) Explicitly describe the relationship of the parameters di and d2 to the structure of the option, the level of interest rates and the volatility of the stock price and the relationship of the parameters to each other, use the notation of the last question (e.g.. write the formulas for di and dz)

Explanation / Answer

Correct Answers is C
c = S0N(d1) KerT N(d2)

Explaination for such answer

Answer 13 (a)

p = N(-d2)ke-rt-SN(-d1)

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