# Black Scholes

I know calculating option prices using black-scholes is outside the scope of the exam, but I came across this question and was interested in how to approach it.

The following information on an option contract is presented:

Time to expiration: 185 days

Current share price: \$200

Standard deviation: 20% per annum

Risk free rate: 10%

Dividend yield: 10%

The question asked how to calculate the price of a call option which is easy, but then it asks to calculate the price of a put using put-call parity. What do you do with the dividend in the put-call parity formula?

In the put call parity you deduct the dividend value from the price of the stock. This calculation is in fact covered in the curriculum, take a look on the index.

In the CFA L2 curriculum btw, you are L1 candidate yet. Perhaps you going too forward right now?

Yes I know its not covered in L1, was just curious.

So would the dividend be 20?

Yes, 10% dividend yield is 20\$.

Would you then discount the dividends the same way you would a bond in the put call parity formula assuming interest is continuous?

Yup, exactly the same, just be careful about the number of days indicated.