Question
Prices of two non-dividend paying stocks S and Q are 51.97145 and 40.61712 respectively. There are three possible outcomes for their prices after 1 year:
Prices of two non-dividend paying stocks S and Q are 51.97145 and 40.61712 respectively. There are three possible outcomes for their prices after 1 year: The continuously compounded risk-free rate is 8 %, r =8%. An option portfolio consists of a European call option on S with strike price 60 and a European call option on Q with strike price 60 also.
Calculate the price of this option portfolio.
| Outcome | Price of S | Price of Q |
| 1 | 80 | 20 |
| 2 | 54 | 40 |
| 3 | 40 | 70 |
| Current price | 51.97145 | 40.61712 |
| Strikes | 60 | 60 |
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Creating Financial Value A Guide For Senior Executives With No Finance Background
Authors: Malcolm Allitt
1st Edition
1472922719, 978-1472922717
