Question
Please show your work. The following quotes were observed for options on a given stock on November 1 of a given year. These are American
Please show your work. The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls except where indicated. Use the information to answer questions 7 through 20. Strike: 105, 110, 115 Call Nov: 8.40, 4.40, 1.50 Call Dec: 10, 7.10, 3.90 Call Jan: 11.50, 8.30, 5.30 Put Nov: 5.30, 0.90, 2.80 Put Dec: 1.30, 2.50, 4.80 Put Jan: 2.00, 3.80, 4.80 The stock price was 113.25. The risk-free rates were 7.30 percent (November), 7.50 percent (December) and 7.62 percent (January). The times to expiration were 0.0384 (November), 0.1342 (December), and 0.211 (January). Assume no dividends unless indicated. Show your work. 15. What is the European lower bound of the December 105 call? 16. What is the European lower bound of the November 115 call? 17. From American put-call parity, what are the minimum and maximum values that the sum of the stock price and December 110 put price can be? 18. The maximum difference between the January 105 and 110 calls is which of the following? 19. Suppose you knew that the January 115 options were correctly priced but suspected that the stock was mispriced. Using put-call parity, what would you expect the stock price to be? For this problem, treat the options as if they were European. 20. Suppose the stock is about to go ex-dividend in one day. The dividend will be $4.00. Which of the following calls will you consider for exercise? Show your work
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