Parameters

Company A has a current stock price of $100 per share

There are two options that are outstanding. Both of these are European call options.

Option 1: 3 year maturity with a $120 strike price

Option 2: 2 year maturity with a $90 strike price

Questions:

Case A: Let's assume that Option 2 was modified such that the holder can only exercise if the Company A stock price reaches $150 at the end of the option term - do you expect the value of Option 2 to increase or decrease relative to base case? And why? What methodology would you use to value this option?

Estimate the fair value of both options using a 30% volatility and a 5% risk free rate. Use R/Python. (Hint: use the Monte Carlo simulation)