Question
An investor buys a call option on TomCo stock, agreeing to pay $100 for 1 share in 1 year if the investor exercises the option.
An investor buys a call option on TomCo stock, agreeing to pay $100 for 1 share in 1 year if the investor exercises the option. Analysts model the spot price S of TomCo stock in 1 year with PDF
fS(s) =1/100 (s 90), 90 s < 100
1/100 (110 s), 100 s 110
The investor pays $3 for the call option which could have been invested in a 12-month CD at interest rate i = 2.1%. What is the probability the investor makes a profit from buying the call option?
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The World Economy Geography, Business, Development
Authors: Frederick P. Stutz, Barney Warf
6th edition
321722508, 321722507, 978-0321722508
