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Q&a3 - Q3.8

J

Jesoos

Member
I understand the general points in the solution on how to identify the graphs to the different elements being varied.

However, for completeness sake I calculated the call option equation to see if I could get the values on the graphs. Unfortunately I do not even come close, am I doing something wrong?

Take Graph 2 for example. I calculate the call option as follows:

S - K*exp(-rT)

1. S=240 => 240 - 250*exp(-0.06*0.5) = -2.6114 but Graph 2 does not even contain a negative value?

2. S=250 => 250 - 250*exp(-0.06*0.5) = 7.3886 but Graph 2 shows a value between 10 and 20 for S=250.

I suspect my calculation of the call option might be wrong and I need to include the volatility value of 0.2 somewhere into this calc?

Please can someone explain what I am doing wrong?

Thank you!
 
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