A stock price is currently $ 100. Over the next two six-month periods it is expected to go up by 10% or go down by 10%. The risk-free interest rate is 8% per annum with continuous compounding. (i) What is the value of a one-year European call option with a strike price of $ 100. (ii) What is the value of a one-year European put option with a strike price of $ 100. (iii) Verify that the European call and the European put satisfy put-call parity.
A stock price is currently $ 100. Over the next two six-month periods it is expected to go up by 10% or go down by 10%. The risk-free interest rate is 8% per annum with continuous compounding. (i) What is the value of a one-year European call option with a strike price of $ 100. (ii) What is the value of a one-year European put option with a strike price of $ 100. (iii) Verify that the European call and the European put satisfy put-call parity.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
Problem 4P: Put–Call Parity
The current price of a stock is $33, and the annual risk-free rate is 6%. A call...
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A stock price is currently $ 100. Over the next two six-month periods it is expected to go up by 10% or go down by 10%. The risk-free interest rate is 8% per annum with continuous compounding.
(i) What is the value of a one-year European call option with a strike price of $ 100.
(ii) What is the value of a one-year European put option with a strike price of $ 100.
(iii) Verify that the European call and the European put satisfy put-call parity.
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