Financial DerivativesTU Board 2021
Kathmandu Laboratories, Inc., is a new high technology company whose common stock sells for Rs 230 per share. A call option exists on this stock with 3 months to expiration. It has an exercise price…
5Kathmandu Laboratories, Inc., is a new high-technology company whose common stock sells for Rs 230 per share. A call option exists on this stock with 3 months to expiration. It has an exercise price of Rs 215. You have made a careful study of the stock's volatility and conclude that a standard deviation of 0.50 is appropriate for the next 3 months. Currently, the risk-free interest rate is 6 percent per annum. Using the Black-Scholes-Merton option-pricing model, what is the fair price of European call on this stick?
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