Solution: Computing a Black-Scholes Call Price

Exercise: Computing a Black-Scholes Call Price

Solution

$d_1=(0+0.05+0.5(0.2)^2)/0.2=0.35$ and $d_2=0.15$. The call price is

Takeaways

• $d_2=d_1-\sigma\sqrt T$.
• The discounted strike term uses $e^{-rT}$.
• This parameter set is the standard Black-Scholes benchmark.