BlackScholes A stock is currently priced at $50. The stock will never pay a dividend. The risk-free
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Black–Scholes A stock is currently priced at $50. The stock will never pay a dividend. The risk-free rate is 12 percent per year, compounded continuously, and the standard deviation of the stock’s return is 60 percent. A European call option on the stock has a strike price of $100 and no expiration date, meaning that it has an infinite life. Based on Black–Scholes, what is the value of the call option? Do you see a paradox here? Do you see a way out of the paradox?
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Related Book For
Corporate Finance With Connect Access Card
ISBN: 978-1259672484
10th Edition
Authors: Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe
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