Please discuss the Black & Scholes model and the binomial model approach to option pricing. What...

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Please discuss the Black & Scholes model and thebinomial model approach to option pricing. What are the advantagesand disadvantages of these two approaches? Determine the price of acall and put option assuming that the exercise price is $105, thevalue of the stock is $101, risk-free rate is 2.05%, standarddeviation of returns on the stock is 28%, and the option has 6months remaining to maturity. What is the price sensitivity of thecall and put options to changes in the price of the stock? Wouldthe sensitivity be different if the exercise price in this examplewas $103? Please explain.

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Solution Black Scholes Model It is a mathematical model for valuation of options price which calculates both call put option price as per their respective parameters as both are different from each other This model shows how price changes random timely continuous with constant drift and volatility Assumptions of the BlackScholes See Answer

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Please discuss the Black & Scholes model and thebinomial model approach to option pricing. What are the advantagesand disadvantages of these two approaches? Determine the price of acall and put option assuming that the exercise price is $105, thevalue of the stock is $101, risk-free rate is 2.05%, standarddeviation of returns on the stock is 28%, and the option has 6months remaining to maturity. What is the price sensitivity of thecall and put options to changes in the price of the stock? Wouldthe sensitivity be different if the exercise price in this examplewas $103? Please explain.