You own a one-year European call option to buy one acre of Los Angeles real...
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You own a one-year European call option to buy one acre of Los Angeles real estate. The exercise price is $2.12 million. Suppose the land is occupied by a warehouse generating rents of $210,000 after real estate taxes and all other out-of-pocket costs. The present value of the land plus the warehouse is $1.82 million. The annual standard deviation is 15% and the interest rate is 14%.
How much is your call worth? (Enter your answer in dollars not in millions. Do not round intermediate calculations.)
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