Assume that you have the rights to a coal mine and the most recent valuation of the mine was 6.6 million. Because of increasing demand from Asia, the price of similar mines has grown by 15 per cent per annum, with an annual standard deviation of 25 per cent. A buyer has recently approached you and wants an option to buy the mine in the next 12 months for 6.9 million. The risk-free rate of interest is 5 per cent per year, compounded continuously.

Required:

How much should you charge for the option?