Answered step by step
Verified Expert Solution
Question
1 Approved Answer
10. The following option prices were observed for calls and puts on a stock for the trading day of July 6 of a particular year.
10. The following option prices were observed for calls and puts on a stock for the trading day of July 6 of a particular year. Use this information in the following question. The stock was priced at 165.13. The expirations were July 17, August 21, and October 16. The continuously compounded risk-free rates associated with the three expirations were 0.0503, 0.0535, and 0.0571, respectively. Unless otherwise indicated, assume the options are European Strike 155 160 165 170 Jul 10.50 6.00 2.69 0.81 Calls Aug 11.75 8.13 5.25 3.25 Oct 14.00 11.13 8.13 6.00 Jul 0.19 0.75 2.38 5.75 Puts Aug 1.25 2.75 4.75 7.50 Oct 2.75 4.50 6.75 9.00 Let the standard deviation of the continuously compounded return on the stock be 21 percent. Suppose the stock pays a $1.10 dividend with an ex-dividend date of September 10. What is the theoretical fair value of the October 165 call? (5 pts) 10. The following option prices were observed for calls and puts on a stock for the trading day of July 6 of a particular year. Use this information in the following question. The stock was priced at 165.13. The expirations were July 17, August 21, and October 16. The continuously compounded risk-free rates associated with the three expirations were 0.0503, 0.0535, and 0.0571, respectively. Unless otherwise indicated, assume the options are European Strike 155 160 165 170 Jul 10.50 6.00 2.69 0.81 Calls Aug 11.75 8.13 5.25 3.25 Oct 14.00 11.13 8.13 6.00 Jul 0.19 0.75 2.38 5.75 Puts Aug 1.25 2.75 4.75 7.50 Oct 2.75 4.50 6.75 9.00 Let the standard deviation of the continuously compounded return on the stock be 21 percent. Suppose the stock pays a $1.10 dividend with an ex-dividend date of September 10. What is the theoretical fair value of the October 165 call? (5 pts)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started