Question
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4%
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is six months. Use a two-period binomial option pricing model.
- What is the price of the option if it were a European call?
- What is the price of the option if it were a European put?
- Verify that put-call parity holds.
Assume that the stock is expected to pay dividends in 1.5 months. The expected dividend is 50 cents. Use Black-Scholes model.
What is the price of the option if it were a European call?
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakin
7th Global Edition
0273754440, 9780273754442
