Question
1.Suppose the date is October 27 th .On this date, the Cloud Corporation's stock trades at $15.36.On this date, the most actively traded option for
1.Suppose the date is October 27th.On this date, the Cloud Corporation's stock trades at $15.36.On this date, the most actively traded option for this stock is a call option with November maturity and a strike price of $17.50, which has exactly 30 days until expiration.Assume a US Treasury Bill with the same maturity has an annualized return of 1.20%. Assume the variance of the stock price is 10% annually. You can assume that options for Cloud Corporation have European type exercise structure.
a)Calculate the Black-Scholes price for the call option described above.
b)Calculate the price of a put option that has the same strike price and maturity as the call option above.
a)If the call option described above trades for $0.1 in the market, what would you expect the market price of the same call option to be if the stock price increases to $16.15?
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