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Calculate the maximum bid

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Real Option jack Black is an international conglomerate with a petroleum division and is currently competing in an auction to win the right to drill for crude oil on a large of land in one year. The current market price of crude oil is $58 per barrel, and the land is believed to contains 375,000 barrels of oils. If found, the oil would cost $35 million to extract. Treasury bill that mature in one year yield a continuously compounded interest rate of 4 percent, and the standard deviation of the returns on the price of crude oil is 50 percent. Use the black-scholes model to calculate the maximum bid that the company should be willing to make at the auction.

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This question deals with finding a current bid price by using Black Scholes Model which is the most conman pricing model.

Reference no: EM13281859

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