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Note: The effect of increasing the time to maturity is positive for an American put option, but the impact is ambiguous for a European put.

Note: The effect of increasing the time to maturity is positive for an American put option, but the impact is ambiguous for a European put.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VIII. Topics in Corporate Finance

24. Option Valuation

© The McGraw-Hill Companies, 2002

CHAPTER 24 Option Valuation

Work the Web

The Black-Scholes OPM is a wonderful tool, but as we have seen, the calculations can get somewhat tedious. One way to find the price of an option without the effort is to work the Web. We went to the options calculator at the Chicago Board Options Exchange, www.cboe.com. Suppose we have an option with a strike price of $75 that expires in October. The current stock price is $72.62, the standard deviation of the stock's return is 48 percent per year, and the risk-free rate is 3.2 percent. Assuming the stock does not pay dividends, this is what we get:

This Option Calculator is for educational and illustrative purposes only

Information | IndexOptlons Equity Options —Input Values-

Equity Pric;-Strike Price: Volatility (% per year): Annual Interest Rate: Quarterly Dividend Amount: First Dividend Date:

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