Question

Consider an employee who receives a call option with forward start three months from today. The options start 10% out-of-the-money, time to maturity is one year from today, the stock price is 60, the risk-free interest rate is 8%, the continuous dividend yield is 4%, and the expected volatility of the stock is 30%. In other words, S = 60,  = 1.1, t = 0.25, T = 1, r = 0.08, b = 0.08-0.04 = 0.04, and  = 0.30.

Build a spreadsheet model to calculate the call price with panels for inputs and panels for the model, similar to the Black-Scholes type analytical models. spreadsheet model. Use interim calculation steps, such as d1, d2, N(d1) and N(d2), before you reach your final valuation of the option. Round up your final result to $0.01.

Please I need step by step in Excel.

Thank you!

Answer 1

It is not clear weather Strike Price is 110% of Stock price or Fordward price. Hence Case 1 And Case 2 are considered.

Case 1: Strike price assumed to be 110% of Stock Price

Case 2: Strike price assumed to be 110% of Forward Price