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The intrinsic value of a call option is defined by max(S – K,0). This is the call option value if it were exercised imme
Posted: Fri Mar 04, 2022 9:34 am
by answerhappygod
- The Intrinsic Value Of A Call Option Is Defined By Max S K 0 This Is The Call Option Value If It Were Exercised Imme 1 (127.5 KiB) Viewed 21 times
The intrinsic value of a call option is defined by max(S – K,0). This is the call option value if it were exercised immediately. The total value of a call option can be thought of as the sum of its intrinsic value and its time value: Option price = Intrinsic value + Time value. = = Consider a European call option on a non-dividend-paying stock. The call option price is computed using the Black-Scholes model. Suppose that the strike price is K = $100. The stock volatility is o = 30%, the continuously compounded interest rate is r = 5%, and the time to expiration is T = 6 months. a) Plot (in a single figure) the call option price, the intrinsic value of the call option, and the time value of the call option versus the current stock price. Use different colors and add a legend to the plot. Consider the following range of current stock prices on the horizontal axis: SE [50, 150). Based on visual observations, discuss the relationship between the option value, the intrinsic value, and the time value.