Black—Scholes An equity is currently priced at £50. The share will never pay a dividend. The risk-free rate is 12 per cent per year, compounded continuously, and the standard deviation of the share’s return is 60 per cent. A European call option on the share 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? What do you know about the relative prices of the put and call if share price and exercise price are the same? Do you see a paradox here? Do you see a way out of the paradox?