List all the factors affecting stock option prices

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Reference no: EM132055267

1) List all the factors affecting stock option prices.

2) What is the most critical variable in the Black-Scholes option pricing model? Explain.

3) Consider a European call and put option on a stock. The stock price is $85, the time to maturity nine months, the risk-free rate of interest is 5% per annum, the exercise price is $80, and the volatility is 32%. The dividend yield on the stock is 8%. Use the Black-Scholes Option pricing model to find the price of the European Call option and European Put option with dividends. Show all your work.

Reference no: EM132055267

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