Question
A binary option pays off R235 if a stock price is greater than R50 in 6 months. The current stock price is R43 and its
A binary option pays off R235 if a stock price is greater than R50 in 6 months. The current stock price is R43 and its volatility is 35% per annum. The risk-free rate is 6% (continuously compounded) and the expected return on the stock is 11.5% (continuously compounded). Calculate the value of the option.
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
12th Edition
978-0030243998, 30243998, 324422695, 978-0324422696
