Solution-Develop four black-scholes-merton values

Develop four black-scholes-merton values

Assignment Help Finance Basics

Reference no: EM131319026

You are prohibited from discussing this assignment with other students. Construct an Excel spreadsheet that determines the following values:

1. Black-Scholes-Merton model call option without dividends.
2. Binomial model European call option without dividends.
3. Binomial model American call option without dividends.
4. Black-Scholes-Merton model call option with dividends.
5. Binomial model European call option with dividends.
6. Binomial model American call option with dividends.
7. Black-Scholes-Merton model put option without dividends.
8. Binomial model European put option without dividends.
9. Binomial model American put option without dividends.
10. Black-Scholes-Merton model put option with dividends.
11. Binomial model European put option with dividends.
12. Binomial model American put option with dividends.

The spreadsheet should have a title tab that includes: (1) the purpose; (2) the author; and (3) any references. An example is as follows:

Purpose:	Determine the value of European and American call and put options using the Black-Scholes-Merton model and a multi-lattice model.
Author:	Ty Taylor, CFA; [email protected]
References:	1. Fundamentals of Futures and Options Markets, 8th Edition, John C. Hull.
	2. Valuing Employee Stock Options, Johnathan Mun.
	3. Real Options Analysis, 2nd Edition, Johnathan Mun.

The spreadsheet should have an assumptions tab to which all calculations are tied. If a user of the spreadsheet wants to change an assumption, they should be able to so by going to one place. I will test each student's spreadsheet to make sure this works correctly. Use the following assumptions:

Assumptions
Valuation Date	01/11/16
Option Expiration Date	01/11/18
Risk-Free Rate of Return, r	2.0000%
Stock Price T0	$100.0000
Stock Dividend Yield, g	3.0000%
o of the Stock Price, Annual	50.0%
Call Exercise Price, KC	$105.0000
Put Exercise Price, KP	$110.0000

There should be a section in which "intermediate calculations" are shown. This may by on the same tab as the assumptions. An example follows. Your intermediate calculations should be equal to these calculations:

Intermediate Calculations Option Life in Years, T	2.000000	= (Expiration Date - Valuation Date)ƒ365.5
Time Step, Annual, 6t	0.038462	= Option Life in Years ƒNumber of Lattice Steps
Stock Price Up Move, u	1.103027	= Exp(1)^[o(6t^0.5)]
Stock Price Down Move, d	0.906596	= 1ƒu
Risk-Neutral Up Probability, 0.479423 = {[Exp(1)^(r6t)] - d} ƒ (u - d) Without Dividends, p Risk-Neutral Down Probability, 0.520577 = 1 - p Without Dividends, (1-p) Risk-Neutral Up Probability, With 0.473547 = {[Exp(1)^((r-g)6t)] - d} ƒ (u - d) Dividends, p Risk-Neutral Down Probability, 0.526453 = 1 - p With Dividends, (1-p)

You will develop four Black-Scholes-Merton (BSM) values, and you should have four BSM templates.

Reference no: EM131319026

Questions Cloud

Distinguish between likelihood-equivalent models : In a Bayesian approach, on the other hand, two likelihood-equivalent models may nevertheless be somewhat distinguished, in the light of data, since likelihood-equivalence does not force a Bayesian to use priors that assign equivalent densities ove..

Exclusive right to exercise a real option : How important is it that an organization have an exclusive right to exercise a real option? That is, can we really say that an option being considered has value if competitors may exercise it also?

Case diagnosis - depression in a native american elder : Construct a diagnosis for the case "Depression in a Native American Elder" described on page 11 of your text. Be sure to fully justify the diagnosis with appropriate references to the Learning Resources, and include necessary descriptors

Calculate the after tax cash flows for the project for year : Wheel has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of six percent per year forever. If the stock is currently selling for $50 per share with a 10% flotation cost, what is the cost of new equity..

Develop four black-scholes-merton values : FIN4486 Excel Exam Instructions - Develop four Black-Scholes-Merton (BSM) values, and you should have four BSM templates. Use the layout.

Find the probability that nicollette scores : (a) Let X be the number of field goals that Mimi scores in the game. As we know, the distribution of X is a binomial probability distribution. What is the number of trials (n), probability of successes (p) and probability of failures (q), respect..

Explain the pressure associated with ethical decision making : Relate managerial hubris to ethical decision making and the overall impact on the business environment. Explain the pressures associated with ethical decision making at Farrow's Bank.

What can be predicted about successive intervals : what can be predicted about successive intervals between the dates when records are broken?

Percentile for the distribution of exercise time per week : (a) Find the 75th percentile for the distribution of exercise time per week. (b) What is the probability that a randomly selected adult has more than 5 hours of exercise per week?

User Account

All Pages

Develop four black-scholes-merton values

Reference no: EM131319026

Reference no: EM131319026

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT