Question
Suppose that you just joined the Kuala Lumpur office of the Standard Chartered Bank. On your first day on the job, you have been asked
Suppose that you just joined the Kuala Lumpur office of the Standard Chartered Bank. On your first day on the job, you have been asked to value a European option on a stock. The stock is currently trading at 60.00 ringgits per share. The 4-month nominal risk-free ringgit interest rate is 6.5%. Your colleague, who was previously working in the stock, has estimated the weekly return volatility (i.e., the volatility based on weekly return) to be 3.1%.
(a) Find the value of a 4-month European call option on the stock with strike or exercise price equal to 55 ringgits.
(b) Find the value of a 8-month European call option on the stock with strike or exercise price equal to 55 ringgits.
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