A stock price is currently $100. It is known that at the end of 1 month it will be either $90 or $110. The risk-free rate of interest is 6% per annum with continuous compounding. Compute the price of a 1-month European put option with a strike price of $95 using no- arbitrage arugments. (Note: You need to construct riskless portfolio then apply no-arbitrage arguments, in particular you need to compute the "delta" of this option.)
A stock price is currently $100. It is known that at the end of 1 month it will be either $90 or $110. The risk-free rate of interest is 6% per annum with continuous compounding. Compute the price of a 1-month European put option with a strike price of $95 using no- arbitrage arugments. (Note: You need to construct riskless portfolio then apply no-arbitrage arguments, in particular you need to compute the "delta" of this option.)
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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