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I am really confused on the usage of the greeks and the Black-Scholes model for option pricing. To gain some more understanding I am attempting to see if I can price a european call option under the following circumstances. If the underlying stock is currently selling for 70, the stock pays dividends continuously proportional to its price, the dividend yield is 3%, the continuously compound risk free interest rate is 7% and the option expires in 1 year. What would the price of a European call option with strike 85 that expires in one year and has a delta of 0.3 be? Is it possible to do this. The formula for the blackscholes pricing does not seem to account for yield.

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  • $\begingroup$ If the dividend yield is continuous and a constant percentage of the stock price, then can't it just be netted against the risk free rate..? $\endgroup$ – Judo Jun 11 at 8:48
  • $\begingroup$ Yeah I ended using the delta for a call option and using that to solve for the volatility and solving from there $\endgroup$ – lambdaepsilon Jun 11 at 9:20
  • $\begingroup$ @lambdaepsilon feel free to post your own answer to your question :) $\endgroup$ – Kevin Jun 11 at 9:30

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