6:14 1 WhatsApp

6:14 f WhatsApp < student_solutio...ivatives__9ed.pdf interest earned on the strike price increases making early exercise more attractive. When volatility decreases, the insurance element is less valuable. Again this makes early exercise more attractive. Problem 11.14. The price Of a European call that expires in six months and has a strike price Of is $2. The underlying Mock price is $29, and a dividend e/ SO. SO is expected in tho momhs and again in Jive months. Interest rates (all maturities) are 10%. What is the price ofa European put option that expires in six months and has a strike price e/ S3()'; Using the notation in the chapter, put-call parity [equation (l I. 10)1 gives DSO In this case p=2+30e In other words the put price is $2.51. Problem 11.15. Explain the arbitrage opportunities in Problem I 14 the European put price is SS.