Option and Bond Valuations AQ095-3-3 OBV Option Pricing using the Black-Scholes Formula
Tutorial 4
1. For a European call option on the stock. Stock price follow Black-Scholes framework,
stock price is 60, stock’s volatility is 0.25, stock pays no dividends, continuously
compounded risk-free interest rate is 0.1, option expires in 1 year, strike price is 65.
Calculate the premium for the call option. Ans: 𝑪𝒂𝒍𝒍 = 𝟔. 𝟓𝟐
2. For a 1-month European call option on a stock, you are given stock price is 27, strike
price is 30 , continuously compounded risk-free interest rate is 8% . Stock pays
continuous dividends proportional to its price at a rate of 2%, volatility of stock is 0.2.
Calculate 𝑑1 used in the Black-Scholes formula for the price of this option.
Ans: 𝒅𝟏 = −𝟏. 𝟕𝟎𝟗𝟒𝟑
3. For a 3-month European put option on a stock, stock price is 41, strike price is 45,
annual volatility of a prepaid forward on stock is 0.25, stock pays dividend of 2 at the
end of 1 month. Continuously compounded risk-free interest rate is 0.05. Determine
the Black-Scholes premium for the option. Ans: 𝑷𝒖𝒕 = 𝟓. 𝟖𝟑
4. You are considering purchase of a 3-month European put option on a stock with an
announced dividend payment of 1.50 in 2 months. You are given strike price is 50,
continuously compounded risk-free annual interest rate is 10% compounded
continuously. Annual volatility of a 3-month prepaid forward on the stock is 0.3. Stock
follows the Black-Scholes framework. 𝑑2 = −0.1086, determine the current stock
price. Ans: 𝑺𝟎 = 𝟓𝟎
5. You are given the following information for a European call option on a stock, time to
maturity is 6 months, stock has a current price of 75, option has a strike price of 72,
volatility of a 6-month prepaid forward on the stock is 25%, continuously compounded
risk-free interest rate is 0.06. Stock pays dividends of 0.75 and 1.50 after two and five
months respectively. 𝑑1 = 0.3202, calculate the Black-Scholes price of the call option.
Ans: 𝑪𝒂𝒍𝒍 = 𝟔. 𝟔𝟐
6. For the dollar-pound exchange rate, you are given the spot exchange rate is 1.3$/£,
volatility is 0.2, continuously compounded risk-free interest rate for dollars is 0.04,
continuously compounded risk-free interest rate for pounds is 0.05. Determine the
Garman-Kohlhagen premium for a 6-month pound denominated European call option
on dollars with strike price 0.7£/$. Ans: 𝑪𝒂𝒍𝒍 = 𝟎. 𝟎𝟖𝟓𝟕
7. For an 8-month European put option on a currency with a strike price of 0.50, current
exchange rate is 0.52 , volatility of exchange rate is 12% , domestic continuously
compounded risk-free interest rate is 4%, foreign continuously compounded risk-free
rate is 0%. Calculate the price of option using Garman-Kohlhagen model.
Ans: 𝑷𝒖𝒕 = 𝟎. 𝟎𝟎𝟕𝟑𝟕
Level 3 Asia Pacific University of Technology & Innovation Page 1 of 2
Option and Bond Valuations AQ095-3-3 OBV Option Pricing using the Black-Scholes Formula
8. You are given 1-year future price for gold is 600, annual volatility of the price of gold
is 0.2, continuously compounded risk-free interest rate is 0.05. Determine the Black
premium for a 1-year European call option on the futures contract with a strike price of
610. Ans: 𝑪𝒂𝒍𝒍 = 𝟒𝟏. 𝟐𝟒
9. For a stock following Black-Scholes framework, you are given current stock price is
40, stock pays dividends proportional to its price at a continuous rate of 0.02, annual
volatility of the stock is 0.3, continuously compounded risk-free interest rate is 0.06.
Determine the premium for a 3-month European put option on a 1-year future contract
on the stock with strike price 45. Ans: 𝑷𝒖𝒕 = 𝟒. 𝟓𝟒
10. For a European call option on a futures contract, you are given price of the underlying
stock is 100, volatility of the underlying stock is 0.4, underlying stock pays continuous
dividends proportional to its price at a rate of 0.02, continuously compounded risk-free
interest rate is 0.08, future contract expires in 1 year. Call option expires in 3 months,
strike price is 100. Calculate the price of the call option. Ans: 𝑪𝒂𝒍𝒍 = 𝟏𝟏. 𝟒𝟒
Level 3 Asia Pacific University of Technology & Innovation Page 1 of 2
