Assume the risk-free interest rate is 10% and is equal to the fund's benchmark, the portfolio's net asset value is $100, and the fund's standard deviation is 20%. Also assume a time horizon of 1 year.
What is the Black-Scholes value of the call option on the management incentive fee?

Question

Quizplus · Accepted Answer

N(d₁) = N 11eaaae8_8b3a_4e61_a4b8_4714603c0458_TB6474_11 = N (0.1234) = 0.5495 d₂ = d₁ − 0.2(1)0.5 = 0.1234 − 0.2 = −0.766; N(d₂) = 0.4697 Call value = S0N(d₁) − Xe-rTN(d₂) = (100)(0.5495) − (110)e-(0.1)(0.4697) = $8.18

Assume the Risk-Free Interest Rate Is 10% and Is Equal