a) Explain how the Black-Scholes option pricing model builds on the binomial model. Where does it make extensions? Where is it similar?
b) Use the Black-Scholes formula to calculate the price of a call option given the following information: S = 50.1$ / £ , X = 55.1$ / £ , %1 r = , %2 = ∗ r ,T = 1, ο = 20% .