Exam-Style Questions on the Black-Scholes Formula

The Actuary's Free Study Guide for Exam 3F / Exam MFE - Section 38

This section of sample problems and solutions is a part of The Actuary's Free Study Guide for Exam 3F / Exam MFE, authored by Mr. Stolyarov.

This is Section 38 of the Study Guide. See Section 1 here. See Section 2 here. See Section 3 here. See Section 4 here. See Section 5 here. See Section 6 here. See Section 7 here. See Section 8 here. See Section 9 here. See Section 10

here. See Section 11 here. See Section 12 here. See Section 13 here. See Section 14 here. See Section 15 here. See Section 16 here. See Section 17 here. See Section 18 here. See Section 19 here. See Section 20 here. See Section 21 here. See Section 22 here. See Section 23 here. See Section 24 here. See Section 25 here. See Section 26 here. See Section 27 here. See Section 28 here. See Section 29 here. See Section 30 here. See Section 31 here. See Section 32 here. See Section 33 here. See Section 34 here. See Section 35 here. See Section 36 here. See Section 37 here.

The problems in this section were designed to be similar to problems from past versions of Exam 3F / Exam MFE. They use original exam questions as their inspiration - and the specific inspiration for each problem is cited so as to give students a chance to see the original. All of the original problems are publicly available, and students are encouraged to refer to them. But all of the values, names, conditions, and calculations in the problems here are the original work of Mr. Stolyarov.

Problem ESQBSF1.

Similar to Question 20 from the Casualty Actuarial Society's Spring 2007 Exam 3:

You are aware of the following information for the dividend-paying stock of Astonishing Co. and a European call option on that stock. The current stock price is $600, and the call option strike price is $654. The stock's volatility is 0.4, and the expected annual return on the stock is 15%. The annual continuously-compounded risk-free interest rate is 0.12, and the stock's annual continuously-compounded dividend yield is 0.04. The call option expires in 2 years. Find the call price using the Black-Scholes formula.

Solution ESQBSF1.