Options, Build a Model

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					         A           B           C          D            E             F           G          H           I
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 3                                         Chapter 8. Ch. 8-7 Build a Model
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 6   Assume you have been given the following information on Purcell Industries:
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 8                   P         $15                       X           $15
 9                   t          0.5                     rRF          10%
10                   s2        0.12
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12   Using the Black-Scholes Option Pricing Model, what would be the value of the option?
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14   First, we will use formulas from the text to solve for d1 and d2.
15                                                                  Hint: use the NORMSDIST function.
16                    (d1)        =                         N(d1) =
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18                  (d2)         =                        N(d2) =
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20   Using the formula for option value and the values of N(d) from above, we can find the call option value.
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22                   V           =
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25   a. Construct data tables for the exercise value and Black-Scholes formula value for this option, and graph
26      this relationship. Include possible stock price values ranging up to $27.
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28                                           Option Value
29                           Current    Intrinsic B-S formula
30                Exercise     stock     Value       Value           Option
31                 Price       price                                Premium
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62 c. Suppose this call option is purchased today, draw the profit diagram of this option position at expiration.
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64             XCALL =        $15
65             if P= …        Call
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                       J      K   L         M   N   O   P   Q   R
               1    5/16/2003
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option, and graph
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                         J   K   L   M   N   O   P   Q   R
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osition at expiration.
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