ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DOT COM ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DO | Page 3

more strike prices if you want to. (The difference between your
answer and the market price
will be quite large in some cases.)
Next, take the Black-Scholes formula and plug in different values of
the variance (σ2)
until the Black-Scholes price equals the market price. The variance
that makes these two equal
is known as the implied volatility.
Finally, use put-call parity to compute the Black-Scholes price of put
options with
exercise prices of 1800, 1850, and 1900 that expire in April, May, and
June. Compare the
predicted Black-Scholes price to the actual price in the market.
Department of Ag and Resource Economics UC Davis S&P 500
Index Options Closing Prices from Monday March 3
April
April
April
April
April
April
April
May
May
May
May
May
May
May
June
June
June
June
June
June
June Strike
Call Price Put Price