You have a European call option with the following input parameters: Current price: 71 Strike price: 50 Interest rate: 0.3% Estimated volatility: 50% Time till
You have a European call option with the following input parameters:
Current price: 71€
Strike price: 50€
Interest rate: 0.3%
Estimated volatility: 50%
Time till maturity: 2 years
The only quantity that is not known when an option is sold is the volatility. You have asked several experts who have described scenarios with 52%, 47%, 70%, 53%, 61%, 71% and 55%.
Perform a Monte Carlo simulation for a risk-sensitive evaluation of the fair option price.
Hint: Use the approximation formula
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
First we tabulate the values on an excel spreadsheet as shown be...
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Step: 2
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Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
