Consider a European Call Option with a strike of 82. The current price of the underlying asset is 80, and the time to expiry is 5 months. The current market price of the option is 6.22. The risk-free rate is 4.1%. (b) You believe the true volatility is 28.4%. Is the option under-priced or overpriced? Hence what position should you take in option to make money. Explain.

Consider a European Call Option with a strike of 82. The current price of the underlying asset is 80, and the time to expiry is 5 months. The current market price of the option is 6.22. The risk-free rate is 4.1%. (b) You believe the true volatility is 28.4%. Is the option under-priced or overpriced? Hence what position should you take in option to make money. Explain.

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 3MC: Consider Triple Play’s call option with a $25 strike price. The following table contains historical...

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