BlackScholes and Asset Value You own a lot in Key West, Florida, that is currently unused. Similar
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Black–Scholes and Asset Value You own a lot in Key West, Florida, that is currently unused.
Similar lots have recently sold for $1.6 million. Over the past fi ve years, the price of land in the area has increased 12 percent per year, with an annual standard deviation of 20 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $1.75 million. The risk-free rate of interest is 5 percent per year, compounded continuously.
How much should you charge for the option? LO.1
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