BUS $418-$ Introduction to Derivatives and Risk Management

Assignment $7-$ Black Scholes Model

Introduction

In this assignment, you will implement the Black$-$Scholes model to price a call option.

Instructions:

Refer to the BS option pricing slides in the "Chapter$\_13\_$Black$\_$Scholes$\_$Part$\_2"$ slides.

Build an Excel spreadsheet to calculate the price of a European call option, given the following user$-$

specified inputs:

a$.$ Spot price

b$.$ Exercise price

c$.$ Risk$-$free rate

d$.$ Volatility

e$.$ Time horizon $($in years$)$

Check that your model calculates the price of the Facebook option as shown in the slides $($e$.$g$.$ Slide $15)$

$S=186\mathrm{.}5,x=180,R=1\mathrm{.}80\%,T=0\mathrm{.}25,$ vol $=30\%$

Use the Table function $($under "DatalWhat$-$IfAnalysis"$)$ to calculate prices for the option across a range of

spot prices, from $$100$ to $$200,$ in steps of $$1.$

$($You can use Google to find help on the the Table function$)$

Calculate the intrinsic value for each spot price.

Graph the option and intrinsic values against the spot price. Compare your chart to that on Slide $16.$