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Frodo-Neo Company is currently evaluating the right to drill for crude oil on a large piece of land in one year. Given the following information
Frodo-Neo Company is currently evaluating the right to drill for crude oil on a large piece of land in one year. Given the following information and using Black- Scholes model, calculate the maximum bid that the company should be willing to make at the auction
Current market price of crude oil: $93 per barrel
Expected amount of barrels in the land: 435,000 barrel
Extraction cost: $75million
Risk free interest rate:4%
Standard deviation of the returns on the price of crude oil:50%
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