Problem:
Ricardo International would like you to demonstrate your knowledge of the Black-Scholes option pricing model by finding the call price of an U.S. call option with the following characteristics:
stock price = $60
exercise price = $60
risk-free rate is 12%
volatility (variance of stock returns) = 9% per year
time to maturity = 6 months
Mr. Curtis has one final request before he presents his currency risk reduction plan to the board of directors next week. He would like you to construct information document detailing the various concepts with examples because these are not clearly understood by several members of the upper-level management. The concepts are the following:
a) put-call parity
b) in the money, out of the money, at the money
c) options on futures
d) implied volatility