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[ SLIDE Put(CBOE) || same VIDEO as previous section: login]
Using your intuition for the parameters describing the price of an American option, we are ready to use the VMARKET applet and compare the numerical solution with market prices. Take the American put from Cisco that expired on Jan 18, 2003 with a strike at USD 20. About half a year before the option expiry date (data from Aug 12, 2002, i.e. 159/360 = 0.44 year before), the underlying share was trading for USD 13.12 with a market volatility around 60% (follow the links to obtain current market data). Under reasonable assumptions of a 3% spot rate from the US Treasury and no dividend payed for that share, the VMARKET applet below calculates the fair price using the Black-Scholes model with an American exercise style.
After interpolation, the value obtained (USD 7.104) is very close to the value that was quoted on the Chicago Board of exchange CBOE (USD 7.10).
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