FINC 6001 Intermediate Corporate Finance

1. Go to the Chicago Board Options Exchange’s delayed quote table
(http://www.cboe.com/delayedquote/quote-table)
i) Select a U.S. listed stock with options traded on the stock.
ii) Provide a screen shot of the prices for options on your stock expiring in June 2021.
Make sure your screenshot contains information on the ticker symbol, date of the
quote and the current stock price. (0.5 marks)
iii) Highlight/circle the call option that is at-the-money (or closest to being at-themoney) (0.5 marks)
2. Calculate the call option price based on the Black-Scholes option pricing model. Assume
the stock’s volatility is 20%. Clearly state any assumptions you make. (4 marks)
3. Calculate the call option price based on a three-period binomial tree. Use the following
formulas to calculate the up and down movements: (4 marks)
1 ൅ ?? െ ????????% ൌ?ൌ?ఙ√௛
1 ൅ ???? െ ????????% ൌ?ൌ
1
?
ൌ ?ିఙ√௛
Where ? ൌ standard deviation of annual returns
ℎ ൌ length of time step as a fraction of a year
? ൌ base of natural logarithms

4. Why are there differences between your answers to parts (2) and (3)? Which option price
(from parts (2) or (3)) do you think is more accurate? Explain your answer. (Max 200 words)
(3 marks)
5. Compare your answer from part (4) to the real option prices downloaded from the CBOE
website. What are some reasons for the differences between your answer and the real
option prices? (Max 200 words)
(3 marks)