Question
On 12 August 2009 Bank of America (BAC) stock closed at $15.93. On the same date, a January 2010 call and a put on BAC
On 12 August 2009 Bank of America (BAC) stock closed at $15.93. On the same date, a January 2010 call and a put on BAC with exercise price X = 16 traded at $2.25 and $2.37 respectively. Both options expire 15 January 2010.
• Compute the implied volatility for each of the options. Assume that the annual, continuously-compounded, interest rate is r = 1.5%
• How do the implied volatilities compare to the annualized historical volatility of BAC returns over the last 5 years? And the last year?
• Assume that put-call parity holds and that the call is priced correctly.
What should be the price of the put?
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Statistics For Management And Economics Abbreviated
Authors: Gerald Keller
10th Edition
978-1-305-0821, 1285869648, 1-305-08219-2, 978-1285869643
