Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › black scholes
- This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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- September 12, 2015 at 8:08 pm #271530
hi sir
how can one know that a particular solution to a problem is to use the black scholes option pricing model cuz in some questions like (nente co. june 2012), it was used to measure the value based on the assumption that the project can be delayed but the question never said use the black scholes model to solve. im thinking its more of like we ought to have known that the bs model is appropriate in that situation. so the question is how can one know?(nente co. june 2012)
September 13, 2015 at 9:29 am #271556Although the question does not mention the word ‘option’, the question says that Proposal 2 gives the right to produce a follow on product within two years. Giving the right to do something is what an option is.
The only way of valuing an option in the P4 syllabus is to use the Black Scholes formula. In addition, the fact that the question gave the standard deviation is an extra ‘clue’ in that there would be no other reason for it being given. - AuthorPosts
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