A 6-month forward start option will 6-months from today, Ask an Expert

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A 6-month forward start option will, 6-months from today, provide its owner a 6-month European call on the non-dividend paying stock ? with strike equal to 95% of the stock price at that time. The volatility of ? is .3, and the continuously compounded risk free interest rate is 4%. The current price of ? is $80.00 per share.

(a) Determine the price of a prepaid forward for delivery of 1-share of ? in 6 months.

(b) The price of the forward start option is DS(1/2) for some number D, where S(1/2) is the cost per share of ? in 6 months. Determine the value of D assuming Black-Scholes.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92775919

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