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Question
A company issues an option grant with an outperformance feature, against the S&P 500. Assume S&P 500 = 950, S = 22, k = 25, σ = 0.25, r = 0.06, and 5 years until expiration. The S&P 500 has a dividend yield of 2%, standard deviation of 18.0% and a 0.30 correlation coefficient with the stock. What is the value of the outperformance feature?A) $0.99
B) $1.31
C) $1.59
D) $1.72
Answer
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