An option has a 40% (actuarial) chance of paying $7.03 when the underlying asset increases by 6.3% and a 60% (actuarial) chance of paying $8.67 if the underlying asset declines by 10.8%. Given that the risk-free rate is 3.6% p.a. and there are 3 months until this option is to expire, what is the risk-neutral price of this option? Answer:

An option has a 40% (actuarial) chance of paying $7.03 when the underlying asset increases by 6.3% and a 60% (actuarial) chance of paying $8.67 if the underlying asset declines by 10.8%. Given that the risk-free rate is 3.6% p.a. and there are 3 months until this option is to expire, what is the risk-neutral price of this option? Answer:

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 1P

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Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call option with a strike price of $32 and with 1 year until expiration has a current value of $6.56. What is the value of a put option written on the stock with the same exercise price and expiration date as the call option?
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