• Course Blog
• Course Overview
• Session 1: Bonds and Duration
• Session 2: Interest Rates
• Session 3: Interest Rate Swaps
• Session 4: More Swaps
• Session 5: Intro to Options
• Session 6: Option Pricing
• Session 7: Put-Call Parity
• Session 8: Add'l Options Topics
• Session 9: Convertible Bonds
• Session 10: Enterprise Valuation
• Session 11: Introduction to APV
• Session 12: Adj Present Value
• Session 13: Eq Residual Method
• Session 14: Eq Residual Method
• Session 15: Valuation Summary

Use the Black-Scholes option pricing model and interpret the results.

Date:  Tuesday, April 3, 2007

Read:
1. The Black-Scholes Option Pricing Model (UVA-F-1522)
2. BMA, Chapter 21

Network Files:  Boeing Dell Danaher.xls, bscholes.xls

Class Objective:
Cover the logic and the application of the Black-Scholes Model

Assignment:

For purposes of this assignment assume that today’s date is August 15, 2006. At that time, the U.S. Treasury yield curve was approximately flat at 5% for all maturities. Please assume an annual interest rate (continuously compounded) of 5% in your analysis The network file has historic stock prices and current options prices for Boeing, Dell and Danaher. These companies pay no or small dividends. For purposes of this assignment assume they are non-dividend paying stocks.

Value the following European call options using the bsholes.xls file.
1. Call on Boeing stock; exercise price of $77.50 and 9 months maturity
2. Call on Boeing stock: exercise price of $80.00 and 24 months maturity
3. Call on Dell stock: exercise price of $25.00 and 9 months maturity
4. Call on Dell stock: exercise price of $22.50 and 24 months maturity
5. Call on Danaher stock: exercise price of $67.50 and 9 months maturity