Q4. (10 marks) Consider now that "Olympus volatility parameter is increasing from 6-0.16 to a new level 6==0.25. All the other stock parameters remain the same. 1. Calculate the new value of the European Call using the numbers from Q1 of your exam and explain your answers analytically. 2. Calculate the new value of the European Put using the numbers from Q1 of your exam and explain your answer analytically. 3. What is the Lambda or Vega of the European Call and the Lambda or Vega of the European Put respectively? Explain your numbers analytically Q1. (10 marks) Consider the situation where the "Olympus" stock price 3 months from the expiration of an option is $29, the exercise price of the option is $27, the risk-free rate is 4% per annum, and the volatility is 16% per annum. a. Calculate the price of the European Call and European Put respectively. b. If the quoted price of the European Call is $2.50, can you argue that the call is undervalued? C. If the quoted price of the put is $1.75, can you argue that the put is overvalued? d. Show by the means of well-drawn diagrams that "Option-Pricing" is a ZERO-SUM game. Explain your answers analytically. Q4. (10 marks) Consider now that "Olympus volatility parameter is increasing from 6-0.16 to a new level 6==0.25. All the other stock parameters remain the same. 1. Calculate the new value of the European Call using the numbers from Q1 of your exam and explain your answers analytically. 2. Calculate the new value of the European Put using the numbers from Q1 of your exam and explain your answer analytically. 3. What is the Lambda or Vega of the European Call and the Lambda or Vega of the European Put respectively? Explain your numbers analytically Q1. (10 marks) Consider the situation where the "Olympus" stock price 3 months from the expiration of an option is $29, the exercise price of the option is $27, the risk-free rate is 4% per annum, and the volatility is 16% per annum. a. Calculate the price of the European Call and European Put respectively. b. If the quoted price of the European Call is $2.50, can you argue that the call is undervalued? C. If the quoted price of the put is $1.75, can you argue that the put is overvalued? d. Show by the means of well-drawn diagrams that "Option-Pricing" is a ZERO-SUM game. Explain your answers analytically