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Question 3 (20 marks) A one-month European call option on a non-dividend-paying stock is selling for $2.00. The stock price is $47, the strike price
Question 3 (20 marks)
- A one-month European call option on a non-dividend-paying stock is selling for $2.00. The stock price is $47, the strike price is $45, and the risk-free interest rate is 6 percent per annum. Assuming no transaction costs.
- What is the upper bound of this call option? (3 marks)
[Enter your answer here]
- What is the lower bound of this call option? (3 marks)
[Enter your answer here]
- Is there an arbitrage opportunity on this option and its stock price? (4 marks)
[Enter your answer here]
- A three-month European put option on a non-dividend-paying stock is selling for $2.50. The stock price is $37, the strike price is $40, and the risk-free interest rate is 8 percent per annum. Assuming no transaction costs.
- What is the upper bound of this put option? (3 marks)
[Enter your answer here]
- What is the lower bound of this put option? (3 marks)
[Enter your answer here]
- Is there an arbitrage opportunity on this option and its stock price? (4 marks)
[Enter your answer here]
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Law And Financial Stability
Authors: International Monetary Fund
1st Edition
1513523007, 978-1513523002
